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With Scott Orn

A Startup Podcast by Kruze Consulting

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Scott Orn

Scott Orn, CFA

Peter Lai of Emburse on Taking Control of Your Business Expenses

Posted on: 05/03/2017

Peter Lai

Peter Lai

Co-Founder & CEO - Emburse

Peter Lai of Emburse - Podcast Summary

Peter Lai joins Founders & Friends to discuss his new company, Emburse. Peter is a serial entrepreneur and sold his last company to Box. He shares his tips on attacking new markets, grinding out the product / market fit stage of a startup and explains how he came up with the idea for Emburse. Kruze Consulting recommends Emburse virtual cards and expense management and it was fantastic to have Peter on the podcast.

Peter Lai of Emburse - Podcast Transcript

Scott Orn: Welcome to Founders and Friends podcast with Scott Orn at Kruze Consulting, and before we get to our excellent podcast with Peter Lai of Emburse, I want to talk about a couple of things. First of all the podcast is brought to you by Kruze Consulting, the startup accounting and tax firm started by my lovely wife five years ago, Vanessa Kruz. We have a 160 clients seed series A, series B and even a few serious C guys, and we do all the monthly accounting plus taxes, so if you’re looking for startup accounting help, give us a call or just check out our website kruzeconsulting.com. Also brought to you by Goodwin Proctor, they have a fantastic Fintech meetup coming, probably a meet up is a little too casual but it’s a symposium on the new Fintech charter being discussed, so Michael Wayland is putting that on, one of good ones, top lawyers so I encourage you to check that out. If you need an invite send me a quick email, I can get you an invite. Funnily, the podcast is brought to you by Gusto, Kruze Consulting’s preferred payroll provider, we love Gusto, it is absolutely fantastic, we use it ourselves at Kruze Consulting, I think we have about 140 companies on Gusto as their accountants, it is super easy, it’s very cheap, very intuitive and they have a service that I like that’s called autopilot, which basically means you can set your payroll as long as nothing is changing too dramatically, it just runs automatically. So check out Gusto, we have a link on our website that gives you 20 percent off, and I think you get two free months too, if you basically get the Kruze Consulting deal if you go to Gusto through that link, so check that out. All right, with all that out of the way, let’s talk to Peter Lai of Emburse. Thanks. Welcome to Founders and Friends podcast with Scott Orn at Kruze Consulting, and my very special guest today is Peter Lai from Emburse. It’s great to have you here.
Peter Lai: Thanks.
Scott Orn: So, right off the top, I have to say that we, my lovely wife and I are investors at Emburse, so we love what Peter is doing, so we’re slightly biased, but I hope you enjoy the podcast Peters is an awesome technologist and a great start up guy and I am very happy to have him on the podcast.
Peter Lai: Thank you for the compliments.
Scott Orn: Yes, so maybe just start off and tell your background, your life story a little bit?
Peter Lai: Yeah, well you know, I’m kind of young so there’s not much of a life story, I graduated college and started a company called Crocodoc with three other MIT friends. We spent a year just burning money and we ran out of it, so then we had to move out west to raise more and there’s where Ycombinator really helped save our business. Eventually we built a really awesome online document viewer that Box acquired in 2013, and I spent about a year and a half there before leaving Box to start my current company which is called Emburse, and that’s the one that Scott and Vanessa are investors to.
Scott Orn: Yeah, so I use your software every day, because we love Box, I’m pulling documents up every day like twenty times a day, and I get to use Crocodoc software, like that’s what underpins Boxes file sharing stuff, right?
Peter Lai: Yeah, and I think you use both pieces of software I’ve written, you use Box whenever you view a document in the browser, and you use Emburse for some of your vendor payments at Kruze Consulting.
Scott Orn: Awesome, awesome point, yes we are big Emburse fans, we’ve adopted it, we probably adopted it right when you, not right when you started the company, but probably nine months ago.
Peter Lai: I’m trying to remember why, maybe it’s because I forced you to, or because you needed it.
Scott Orn: We needed it, well you tell people what Emburse does and why people use it, and then I’ll explain why we love it.
Peter Lai: Yeah, so Emburse basically we offer a corporate card that enforces expense policies. We first started with a corporate card and what I meant by forcing Kruze Consulting to use it, you know with startups oftentimes you just launch a product, get as many clients as you can, and then figure out what you should be building. And amongst the first things what we discovered we really needed to do with our cards was to build out a lot of expense policy enforcement and online vendor payment features.
Scott Orn: So in our world, like we see, and we use this internally we also recommend Emburse to our clients, sometimes team members or employees they get the corporate credit card and go wild, or you just don’t trust them with the corporate credit card, and so you’re kind of hesitant to give it to them, and so what Emburse does is it actually like creates a virtual card and you guys do a physical cards, but we can put a limit on how much is actually able to be spent on that, and then we actually have a lot of like coding for knowing how to categorize that, when it comes back into quick books, things like that, so actually it makes our operation a lot more efficient, but it also is like a risk control mechanism with the corporate credit card, does that make sense?
Peter Lai: Yeah, and the other thing we’ve added is an employee can log in and they don’t necessarily need to have a card issued to them yet, they can go onto our platform and request to make a purchase and then an accounting or controller we go ahead and authorize that purchase, a virtual card would be created and sent directly to their inbox.
Scott Orn: Which is hugely powerful, like that’s just doing that that quickly, I think is also one of the big selling points, right, like for example, right now we’re doing a lot of like Delaware Franchise taxes and things like that, and to be able to like knock this stuff out really quickly is very helpful.
Peter Lai: Yeah, exactly.
Scott Orn: We’ll talk about Emburse a little bit more, but let’s go kind of linearly; talk about your document start up and you said like very provocatively, you said like we almost ran out of money in Boston so we moved out the San Francisco. Tell us that story.
Peter Lai: It started with my working with a friend, his name is Ryan Damico, and he was a CEO of Crocodoc. It was originally called Webnotes, and I had worked with him previously on a Nasa project, we flew together on something called the DC-9 or the vomit comet that’s a thing Apolo 13 was filmed on; so I had enjoyed working with him, I knew he had ridiculous attention to detail, and he was doing web annotations and that’s something I was interested in. So I jumped into that start up alongside two other friends, Bennett and Matt. We didn’t really know what we were doing, but we’re smart and turned out pretty persistent too, it was a very long 5, 6 year journey, so we started off not knowing what we were doing, and through six years of time slowly iterated towards something of value, and yeah, I’m a true believer in just picking a direction, really making as much progress towards that and eventually you’ll find product market.
Scott Orn: Having seen you fight and kick ass on Emburse, it’s like I totally can visualize what you’re doing on the on the web hooks product, or the document software product. It’s like you knew there is a demand for that, you knew that these documents were coming to the web and people are going to need to use that a lot more, you just had to figure out kind of your entry point in the market.
Peter Lai: Well, it started off with our trying to do research management, and we focused on web research management, and to try to expand the types of clients that we could acquire, we also had to add document management.
Scott Orn: Are you kidding me? It wasn’t even like the core feature?
Peter Lai: No, we built like web notes, so you could just basically put posted notes all over the web, but nobody really was willing to pay for that, and those who were willing to pay for it, tend to be research scientists who had to manage portfolios of documents. And so, one of the first things we’ve built out was a way to show those documents online, and when we’re still struggling to generate revenue we applied to Y Combinator, they basically helped us refocus our business, and among the first things we did was to pull out the most valuable parts of web notes into a new product called Crocodoc. So, hardest thing we built was this document viewing in the browser, we pulled that out, offered it as a stand-alone product, and then even from there, that wasn’t actually the final destination, we thought people would use our product for e-signatures, and it turns out as way easier to make money by simply allowing other businesses to use our services in API and embed documents within their own products. And so, the biggest first customer there that enlightened us was Yammer, Yammer came to us, looked at our product, and they basically proposed a deal where we would open up an API and allow them to embed their documents within their own product, and we got a really good first initial stream of revenue for our API via that deals.
Scott Orn: That’s awesome. How did that conversation go, Y Combinator, like did they sit you down and say we accepted you because you guys are super bright, but we have a couple of ideas on where you should go, or was it a collaborative process, or how do you make that decision inside of Y Combinator?
Peter Lai: When we applied to Y Combinator, we looked like we had our stuff together, we had some initial revenue from a couple of schools we sold to, we had a functional team of four that had been working together for a while, so from their perspective they saw a team that could build a product, would stick together and was capable of making tough sales. And those were true, but we were also, we needed to raise money more desperately than I think they knew, and it worked out in the end anyway.
Scott Orn: That’s awesome, so you felt like you got that kind of halo brand effect from them a little bit, but also, you guys did some hard work, refocused the product and actually probably made fundraising a lot easier for you.
Peter Lai: And I think why people trust companies with the Y Combinator “brand” I think they do a good job of identifying some of the difficult identify qualities of early startups that yield success most important being, you need a team that’ll stick together, one of the most common reasons I think a startup blows up, sometimes it’s because they run out of money, but oftentimes, in fact in my opinion the majority of the times because the founding team splits. So they really, in my opinion focus on finding teams that will stick together in a rationally long period of time.
Scott Orn: I think you’re right actually, I see there’s times where I see like CEOs lose their nerve, and it’s a shame because they’re building something really cool that I believe in, but they just like lose conviction, and it happens kind of, it’s a slow process and then one day just they’re done. And you also see teams may be like the head of engineering or something like that has their own passion project they want to work on, or their friends starting a company, it’s a little bit of like the next coolest, sexiest thing and they bale, leaving the company without their technical lead or something like that, it is tough to keep a team together, I think it’s a really good way of saying that.
Peter Lai: Now what you said, losing passion in their project, Crocodoc went through incredible numbers of iterations, the advice I usually give to other startup founders, you know a teleport, like a pivot from what Slack was previously doing to what Slack is doing now, that’s quite rare, but the slow evolution of a product from let’s say web research management to holistic research management, then focusing on just document preview to then becoming an API for document preview, that’s something that just takes persistence over time in my opinion.
Scott Orn: You said Yammer is kind of your first anchor customer, how did you go about, did you hire like a sales team or was it you and your co-founders doing the sales? Like how did you guys ramp that?
Peter Lai: So one thing that team was really talented at in my opinion, it was product. So we were really good at document annotations and had provided a product with pretty good user experience. And Yammer really wanted to enable document annotations within their own product, so organically I think their head of engineering reached out to us and over the course of six months tried to find a way for us to work together in delivering the benefits of our product within theirs.
Scott Orn: And then once you have them as a success, did you go out and hit the pavement or what did you do?
Peter Lai: So Ryan said okay we’re clearly making a lot of money doing this, I think we should try to do this.
Scott Orn: Yes let’s not overthink this guys.
Peter Lai: Well, actually I was looking at a product and it said there’s no way there’s a business there, like we should totally just try to do e-signing and web annotations as a consumer or a direct b2b product, and after quite a lot of debate, we decided to split our homepage in two so we had two different types of products, one was for the API business and one was for the consumer-direct b2b business. When I say direct b2b I mean offering a product, a user facing product to the business.
Scott Orn: People inside five hundred company could sign up and use it, that kind of thing.
Peter Lai: Yeah, but it just turned out the API side of the business was so dominant that we started, you know, after our first million revenue, we thought okay we should just deprecate all this consumer stuff, it doesn’t make any sense anywhere.
Scott Orn: Yeah that’s awesome, and how did the Box stuff work out, like did they come to you, or is it a similar story to Yammer, like they’ve been looking for and then just discovered you?
Peter Lai: That also required construction of a relationship over time. Box again, they you know we had a really good product and they really wanted to incorporate the benefits of our product within theirs. But one of Box I would say core features is security, and so despite our spending about a year, on the order of a year trying to figure out how to get our product into theirs, there was really no great way of doing so without simply having our technology within their server environment. During that time our revenue was also, our business was just really doing well and at a certain point, from Box’s perspective, it no longer became just a technology acquisition they could rationalize it as a business acquisition, too, which still generates or business quite a bit of revenue.
Scott Orn: I didn’t know that, so other service providers are still using that technology, outside of Box?
Peter Lai: It’s involved into something called a Box view which a lot of clients still use.
Scott Orn: Yeah, that’s amazing. So they went from just maybe a peer technology acquisition to like an enterprise value acquisition?
Peter Lai: Yeah, I enjoyed working there, they are a great company, I learned a lot, my current business Emburse would not, it would definitely not be as successful as it is, if not for the exposure to a lot of the great talents I met at Box.
Scott Orn: That’s it, actually when we switched from Dropbox to Box about two years ago, and it was such a breath of fresh air, it’s so great, actually we started buying their stock, it was like one of those things let’s not overthink this, and this is a superior product, so I just started buying their stock and it’s done really well. But I think it’s because they’re a well managed company and they’re fighting like some big competitors, like Google and you know Amazon and Dropbox and they just seem to execute, they do that really well.
Peter Lai: Yeah. I can go on this topic for a while, because I’ve done you know content management for I think a decade before switching into corporate card management. In general, that space there are two types of b2b markets there is the smb market and then there is the enterprise market, and the smb market, there is a lot of really tough competition, you’ve got Microsoft going for it, Google going for it and Dropbox going for it. Box has the advantage of having a good reputation among a Fortune 500, and if you look at where the revenue is, they’re both viable strategies, I think Dropbox will do very well as well. But Box definitely has a great market for itself.
Scott Orn: Dropbox was missing all the things that a business customer needs, like we lately couldn’t get someone on the phone to talk to us, despite paying like the maximum amount, and that was like a six month thing, I tried many times and they just, I think they are building customer support and things like that now, but it was just like totally, they just didn’t know how to sell that kind of customer, or actually more importantly support that kind of customer. Where Box was like plug and play from day one, took me about three hours to migrate and we were already rolling, and our clients like it, which is huge.
Peter Lai: I do think that, I think both Box and Dropbox will do very well, I mean, they are doing very well.
Scott Orn: Yeah, so you said you had a couple other like kind of perspective, this was off mic, perspective from the startup and what was it like moving cross country, like that must have been a really difficult decision, was it just practicality and you’re like look the Y Combinator network can help us get funded, or was it like you needed a new beginning mentally, like what precipitated that move?
Peter Lai: Well you know, we were having trouble fundraising, and Y Combinator was just this great opportunity, there were a lot of amazing, [17:18 inaudible] who had done very well through that program. For Ryan and myself, for the majority of the team it was a no brainer. I grew up in Los Angeles and I wanted to be closer to home, so we were very familiar with the reputation of the program, and out of practicality, it was just a great opportunity for us to reset the company and a great opportunity for us to raise more capital afterwards.
Scott Orn: And it had a happy ending, which is fantastic.
Peter Lai: Definitely. But as part of that process, you asked me what I learned about startups; if I were investing or just talking to friends, in general, things that I tend to look for a team that will stick together, perseverance is really important, oftentimes these startups take at least four years to build anything of value, and likely ten to build a great company, if even after having found product market fit, it takes about a decade really see through the execution of that idea.
Scott Orn: It’s like the Jeff Bezos thing where his timelines are longer than everybody else, so he ends up winning, a lot of time, I love how you committed your and how you think that way, and especially as someone who is investing your company. it’s like I love hearing that that’s amazing. Let’s talk about in Emburse a little bit, like you guys are growing really nicely, you also came to Y Combinator for the second time right? Was that a hard decision or is that like just a no brainer?
Peter Lai: Again, of all investors I think Y Combinator really adds a lot of value for b2b business, for better or worse, they give you easy access to a really passionate initial group of early adopters and their network is really quite strong, and not only that, their perspective on growth of small startups and what to look for, what to focus on. They’re pretty sharp, they’ve seen this like a thousand times, even for a repeat entrepreneur they can help mentor founding team and direct them towards growth.
Scott Orn: So did you go into Y Combinator with this concept or were you iterating while you’re in there?
Peter Lai: I had launched that at TechCrunch Disrupt a couple of months before.
Scott Orn: Yeah, cool. And so, what was the epiphany you had with Emburse?
Peter Lai: With Crocodoc, we had struggled to keep control of finances, whereas with a product like Box all our content was centralized, there was a multi tier permissions, access to content was tightly controlled, and they didn’t seem to be an analogous company within the financial space, so coupled with the challenges we had keeping control of budgeting at Crocodoc, it just made a lot of sense to try to build a similar company within the Fintech, space.
Scott Orn: That’s interesting, wow, And so you, so card management and spend was like your number one target?
Peter Lai: In general, we wanted to build the types of tools that would assist controllers at companies with buckling down on budgets or keep granting them visibility into where their money is being spent..
Scott Orn: Yeah, that’s a great, that visibility is actually so valuable because you couldn’t manage your business intelligently if you don’t know where you’re spending money, we have so many clients that come to us without that visibility, that’s one of things we try to get people to, that’s why we like Emburse, but it’s like without that visibility you’re just flying blind, we have come into don’t even know how much their burn rate is, and how much cash they have when they come to us. So like, your mission totally resonates with me and it resonates to our client base.
Peter Lai: Yeah, we’re starting with corporate cards initially, and I suspect as a company progresses we will grow our product to encompass features beyond just corporate card management.
Scott Orn: And so that was the kernel of the idea you joined Y Combinator, and then what was the road like after that?
Peter Lai: From there, so there’s a couple of different moves a business can make, there are these jumps where you take technology and you apply them to different markets, Emburse isn’t like that we had an initial core group of pretty passionate users and from there we just started building stuff that they’ve requested. There was a lot of very fundamental stuff we needed to fix first, for instance funds movement was initially a problem, and we really had to work on enabling faster transfer of funds into the Emburse account, also enabling higher spending limits and international transactions, which is absolutely essential if you’re doing a business.
Scott Orn: You guys can do international, I didn’t know that?
Peter Lai: Yeah, so for instance there are a lot of great software businesses that are incorporated in the United Kingdom, and that was like amongst the first things we bumped into.
Scott Orn: How do you handle like KYC and you know, to know your customer and something like the terrorism, money flow stuff, like how do you do your compliance?
Peter Lai: Our banking partner initially set some unbelievably conservative requirements.
Scott Orn: That doesn’t surprise me.
Peter Lai: Yeah and so for the first three months, Roger, my co-founder he had a tough time onboarding clients, because we would have this ridiculously long list of documents we need from them and even after clicking the documented it would take us another way to get them approved, and so in those first three months amongst the things that we initially had to focus on was just streamlining the KYC process. We have some stronger vendors now that allow us to get through that process faster.
Scott Orn: And so you guys can handle, like you can provision cards to the UK or some other international countries?
Peter Lai: Our cards, our transactions can be authorized internationally. These cards can be issued on behalf of the business to any individual like a contractor or an employee just via an email and name.
Scott Orn: Wow that’s amazing. So that was kind of the early days, you are dealing with compliance, you’re trying to basically to onboard people and then was there a couple of moments where things really started to hit, like what epiphanies did you have?
Peter Lai: We initially just launched the corporate card product, and something we focused on over the next few months was really becoming intimate with the accounting community, and so honestly, when you guys jumped on board as investors, we appreciate your vote of confidence because you belong to the community that we knew we needed to get closer to. And in that process, discussions with accountants and controllers led us to building things like receipt collection, expense policy enforcement, automated categorization and it helped us think of our product as really being task oriented around the reconciliation and budgeting process as opposed to being around card issuance and spending. A lot of our feature set is on, a lot of the new features we’ve added have been designed to restrict spending as opposed to enable it.
Scott Orn: Yeah and the reconciliation that stuff is actually really, until I started doing this, I didn’t realize how important that was, but you could have the newest cool service, but if we can’t pull that into QuickBooks and actually reconcile the accounts and if it doesn’t make our life easier, it’s hard to get us to adopt something. And I think the whole accounting channel is like that, like making our life easier, makes us an advocate for your product, because then we start messaging it to our clients, and telling them to use it.
Peter Lai: You can tell a startup is doing well when from a sales perspective you have more inbound leads than you do outbound, from a sales team. Regarding that focus on delivering a great experience from the prospective of controller or accountant, you touched upon ensuring we had a great for example quick books integration or zero integration, or net suite integration. Until we built that really great quick books integration there existed a lot of friction from the controller’s perspective that dampen sales effort so that was an early focus of our company.
Scott Orn: That’s awesome, what are some of the things on the horizon, like what are you guys, you said there’s a couple of initiatives you may be building or might look at, what are some of the stuff you can talk about in the future?
Peter Lai: Yeah a product as I said is task oriented around expense policy enforcement, or receipt collection. It’s as if you had something like Expensifiy, but instead of reimbursing your employees or contractors after money has been spent, oftentimes it’s necessary to provision them with spending privileges ahead of time, and so many of the features you would expect to see within the standard reimbursement workflow, we’re adding them into Emburse, so that you can request a purchase for example. Or with expense policies, you can implement more granular rules.
Scott Orn: I love the request to purchase, that makes so much sense, like can you walk people through that?
Peter Lai: Yeah, we have one of our clients for example they manage a travel agency and oftentimes when one of their clients’ needs to arrange an itinerary, one of their operators will use Emburse, request detail the cost for that itinerary, request to make that purchase. Depending upon the purchase request requirements, some of them will be automatically improved and some of them will require manual approval from a controller. And then after approval of that purchase, a virtual card will be sent to that operator and the itinerary can be paid for online.
Scott Orn: That’s so amazing, really cool. What are some of your most popular features, like what are people loving about it?
Peter Lai: I would say the most popular thing about our product, a lot of businesses are segmenting their expenses using different cards, so they’ll have not only a card for each individual at a business who need to regularly make purchases, but they’ll also have A card for things like IT infrastructure or for recurring software expenses. One thing that our product is often used for is with controlling employee perks and benefits or budgeting employed perks and benefits, so if for example a business has a couple of locations and they need to control the employee meal expenses at each location, oftentimes they will issue a separate Emburse card for those.
Scott Orn: Yeah, that makes so much sense. So you guys are integrated with QuickBooks, have you done Xero and Net Suite yet?
Peter Lai: Those are in beta and they are looking good.
Scott Orn: Awesome, I mean those are the big three right there, that’s awesome. And probably when you guys, for the record, we’re a big QuickBooks shop but you know, we respect Xero and we just find that QuickBooks has a little bit more industrial strength for what we need it for. But one interesting thing about Xero is they are very international, do you think that’s going to pull you into more international markets, and you get to tackle that kind of stuff?
Peter Lai: That’s a priority right now QuickBooks is by far the most needed of the three given our client base right now, most are feature improvements or feature requests have required a deeper integration with QuickBooks. I would say NetSuite actually is the next most popular actually, especially if you wait it by revenue brought in from our clients.
Scott Orn: Yeah or size of the client. Yeah, that makes total sense. Cool, and can you give kind of just tell me where they can find you online, and give the quick Emburse pitch one more time so people really understand what they’re getting?
Peter Lai: So www.emburse.com it’s like reimburse but spelled with an e and without the re part, go to kruzeconsulting.com-
Scott Orn:  
Peter Lai: We have a giant logo on our site, because we’re huge fans. And in general, yeah basically we issue a corporate card that helps enforce expense policies, so with Emburse, you can instantly issue virtual or physical cards, you can automate transaction categorization and you can set spending intervals as well as enforce receipt collection.
Scott Orn: It’s a really powerful product we like it, we use it internally, and we recommend it to our clients. Congratulations on what you built so far, and I really respect what you’re talking about when you say a startup takes a lot of perseverance and a team that stays together, and I love it when your team comes into our office and you guys are asking our accountants like how we do things and learning from us and that tells me you guys are going to be around for a very long time.
Peter Lai: Thank you for inviting me here.
Scott Orn: Yeah, my pleasure. All right that’s Emburse, Peter Lai, and definitely check it out emburse.com. And again, we are big fans, Peter thanks for coming by, I appreciate it man.

Kruze Cares More - We take our clients’ success - and happiness - seriously. Kruze has worked with hundreds of early-stage companies, many of which have gone on to raise tens to hundreds of millions in venture financing - and a number of which have been successfully acquired by major public companies.

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