Thejo Kote, Founder of Airbase, a cloud-based business spend management software company

Thejo Kote of Airbase - Podcast Transcript

Scott:	Hey, it’s Scott Orn of Kruze Consulting, and welcome to another episode of Founders & Friends. And before we start the podcast, let’s give a quick shout out to Rippling. Rippling is the new cool payroll tool that we see a lot of startups using. Rippling is great for your traditional HR and payroll. They integrate very nicely. But, guess what? They did another thing, they integrate into your IT infrastructure. They make it really easy for when you hire someone to spin up all the web services in their computer, which sounds kind of like not a huge deal. But actually, we did the study at Kruze. We spent $420 on average just getting a new employee’s computer up and running and their web servers up and running. It’s actually a really big deal. It saves a lot of money and the dogs are eating the dog food. Like, we see a lot of startups coming in to Kruze now using Rippling, so please check out Rippling, great service. We love it. I think we have a podcast on Parker Conrad. You can hear it from his own words, but we’re seeing them take market share, so shout out to Rippling. And, now to another awesome podcast at Kruze Consulting’s Founders & Friends. Thanks.
Singer:	(singing) It’s Kruze Consulting Founders and Friends with your host, Scotty Orn.
Scott:	Welcome to Founders & Friends podcast with Scott Orn at Kruze Consulting. And today my very special guest is, Thejo Kote of Airbase. Welcome, Thejo.
Thejo:	Thank you, Scott. Thanks for having me.
Scott:	Yeah. So, you reminded me, we talked a long time ago when you were first starting Airbase, and now we’re going to record it. We’re going to have the up-to-date conversation here, but I’m really excited to reconnect with you and talk to you. And, maybe you can just start out by retracing your career a little bit and telling everyone how you had the idea to start Airbase.
Thejo:	Yeah, so the backstory is I’ve been in the U.S. For, I don’t know, coming up on 11 years now. I came here first in the late 2009, I guess, coming up more on like 12 years. I came here for grad school. And, the goal was to do something of my own, start my own company at some point, which happened soon after much earlier than I expected. I started a company called Automatic with my co-founder back in 2011. It was in a very different space. It was a connected car platform. We had a hardware device and we had a complicated business model of selling to consumers. And then, also in the second half of the company, we also had sold to enterprise companies and large insurance companies. So anyway, fantastic journey. But coming into that company, I knew nothing about finance, nothing about accounting. I’m an engineer by training. I’m a product person. And so, came in not knowing the difference between cash and accrual accounting. Right?
Scott:	Yeah.
Thejo:	But, Automatic was the kind of company where I was forced to learn a lot about that because we made hardware, building up inventory and all of that was real part of the business. And, it was super risky to not understand what was happening there. And so, building up inventory, cashflow management and all that kind of stuff. And so, as a venture funded company, I never wanted to sit in the board meeting and say, “Oops, we screwed up.” “I build up too much [inaudible], I need you to bridge me for six months,” or whatever it is. And so, I made the effort to learn and I made the effort to figure out exactly what we were doing. And, that was great. And overtime, we built up our finance and accounting teams. And so, that taught me a lot. But, the long story short is that it was an incredibly frustrating experience, because I felt like every other part of the company, sales, and marketing, and engineering and product, they always got modern, really good tools. And, it felt like the finance folks didn’t, and there were so many issues, especially around how we spend money as a business, how we manage the money that we spent. And, that was especially frustrating. I couldn’t really do anything about it back then, because building a totally different company, it went into my ideas notebook that I maintain every time I see a problem as I’m building one business, and felt I know this might be something I should look into when I have the time. And, it went into that notebook. And finally, in 2017, we sold the business to SiriusXM. That’s when I started thinking about, “Hey, what am I going to do next?”
Scott:	Yeah.
Thejo:	And, this is one of those ideas that I kept coming back to, because it felt like a very real problem if you think about that basic challenge of how any business spends money, how they manage it, how many systems are involved in how they spend money, and the sheer pain of taking it all in and closing your books at the end of the month, it’s just a really painful. And, I spent about three months doing a lot of customer… I had a thesis about what was broken, how it could be fixed, how it can be made better. But, I spent about three months speaking with, I don’t know, two or three dozen people. You were one among them, and thank you for taking my call and sharing your thoughts with me about what was broken in that experience and all of that. And again, so after having all those conversations, I walked away with a conviction, learnt a lot, like all of those conversations took my kind of understanding of the problem to the next level. But, I walked away with a conviction that, hey, I can’t spend maybe 10, 12 years of my life doing this. And, there is a big shift happening in terms of how companies actually manage the money that they spend, a very basic operation. Like, when your building company, its just a common thing that happens every day. You’re spending money, but if you just look at how broken it is, I think it can be done a lot better and that, that is happening. Airbase, we are doing our bit to bring that whole part of business building kind of to the next stage.
Scott:	Yeah. Well, I love having those conversations with entrepreneurs like yourself, because actually like make a point of having those conversations, because I’m kind of one of these people who’s like, you never know what people are going to dream up and how it’s going to make your life better. And so, it’s like a tiny little investment of my time, but folks like you who come up with like the next amazing financial tool that makes our life easier for all 400 clients is like a great investment of my time. So, I love it. Plus, I’m like an entrepreneur at heart and I just love this kind of stuff, so. And, you guys are doing something really interesting. Maybe just kind of talk about the tool you built and how people are using Airbase.
Thejo:	Yeah. So, 30,000-foot summary is this, if you think about how businesses spend money, you can put them in two buckets, and you have payroll and then non-payroll, right, and it’s a simple that way, where all the payroll dollars typically, it tends to live in a system and how your early stage customers, for example, might be using Gusto. That’s a popular tool these days and all the non-payroll dollars tends to live in a particular system. But then, sorry all the payroll dollars tend to live in a particular system like a Gusto, but then all your non-payroll dollars, that’s where it’s complex. And, there are so many different places where a business spends money. It could be marketing, and travel, and food or software subscriptions, and the hundred other things that companies tend to spend money on. Where that money is spent and the process by which it is spend, it is a fragmented mess of systems. Right?
Scott:	Yeah.
Thejo:	All of the companies, especially at the earlier stages, as you start growing, you want some basic collaboration, you want people to ask before they spend. So, some basic request approval process. How does that happen? It happens in a Slack conversation. It happens via email. It happens in a hallway conversation. And, it is way too early for a lot of these companies to have rigid PO pay systems and [inaudible], things like that. So, the whole process of collaborating around the decision to spend money is all over the place and there’s no audit trail. And, given that everything is a recurring expense these days, sometimes you’re looking at a credit card statement three years down the line going, “Why are we paying this vendor a $1000 a month for the last three years?” [inaudible], “No idea.” Like, “How did that decision happen?” “No idea.” And so, that’s a whole broken process, but then when it’s time to actually spend the money, you have a corporate card system where you’re spending money. Some money is being spent in the bill payment system because people are sending you invoices and you have to make payments to them. Employees are spending money on your personal cards, you have an expense reimbursement system. And so, you’re putting together all of these different systems. Before you know it, you have five or six different systems involved in that basic process of how you spend money as a business.
Scott:	Yeah.
Thejo:	That’s just broken, death by a thousand cuts process. And, this is also super interesting to me when I was building my previous company. We had a very good, smart finance team, but it almost seemed like in the first week of every month they became glorified data entry people. Right?
Scott:	Yeah.
Thejo:	Like, all they’re doing is pulling data from different systems and Excel sheets and annotating it and manually entering it in the general ledger, and they chasing people or how do I categorize this? It’s just a very broken process of how data ends up from all of these fragmented siloed systems and ultimately goes into your general ledger. And, what’s even more frustrating as kind of the person who was building the business, who wanted to make decisions around how you’re spending money, who wanted to have my functional leaders make smart decisions, you can’t. Because in the middle of the month, if you’re never asking the question, “Hey, what’s my budget and can I make this decision to go commit and spend this money?” You don’t have that information.
Scott:	Yeah.
Thejo:	Like, where are you spending money is all living in four different places, and so you have to wait till the end of the month. All the data has to come into the general ledger. Your financial statements have to come out of that. After that, you do your budget versus actuals analysis. And then, you get a report card saying, “Hey, last month, three weeks ago, you went over budget.” I’m like, “What do you do now?” [inaudible].
Scott:	You’re right.
Thejo:	It was just fascinating to me that 2021, like that is how the majority of businesses operate. Like, you just don’t have the real time control, real time visibility to see what money is going out the door, so that you can make the smarter decisions. And, that was fascinating to me. Of course, we can spend a long time talking about why did that ecosystem even evolve that way, so why is it that corporate cards are separate category of product, and payments is a separate category and expense reimbursements is a whole other category. Why did that happen? And there are good reasons, infrastructure and those kinds of things, but it doesn’t have to be that way. It definitely didn’t happen because that was the right experience for people, and for the end users and the users in the company, the finance and accounting folks in companies. It is a terrible experience for them. But then of course, if you really start thinking about it from first principles and then ask the question of, “If you just did it the right way, without these artificial constraints that led to the fragmented mess that we’re in, how would you build it?” Like, what would that platform look like?
Scott:	Yeah.
Thejo:	And, [inaudible]. Anyway, that’s what Airbase does, we essentially bring together all of these different elements of how you spend money in a end-to-end cohesive experience.
Scott:	Yeah. You’ve consolidated like all the different spends, it sounds like outside of payroll-
Thejo:	Yeah.
Scott:	… And make it easy for the entire company to have some visibility, and have approvals and things like that, which is really cool. You’re right, because people are on a credit card system and they might have like a bill pay system, and maybe they’re sending some wires out of their bank, and maybe they’re doing expense reimbursements too. Like, there’s kind of four areas plus payroll, that five areas that people are spending time and money on. So, it’s a pretty cool concept. Like, I know we’ve started seeing you guys take market share, which is one of the reasons why I want to do the podcast, but it feels like the world is starting to come around to your vision. Does it feel like that way when you wake up in the morning? You’re like, “Hey, it’s moving in the right direction.”
Thejo:	No. It is. And, the world has been in this place a little bit over the last two or three years, where I think almost a billion dollars has been invested in corporate card companies, like [inaudible].
Scott:	Yeah.
Thejo:	Which is fine. Look, the good news is that this market is so huge, like literally every business spends money, right?
Scott:	Yeah.
Thejo:	And then, there is an opportunity for every kind of company, and then there are different companies coming at the new opportunity. There’s a resurgence of innovation targeted at finance and accounting teams, which is great. That is good. I think finance and accounting teams, they get much better tools now than they did a few years ago. But, it’s also a large enough market, there are opportunities for various approaches. You can go build, just given the sheer size of the market, multiple opportunities could yield valuable businesses. But, a lot of attention has been on the corporate card, like that’s been the new hot thing and huge amounts of money have been raised behind that, which is all fine. But my approach, my thesis from very early on has been that just offering a corporate card, that’s kind of a race to the bottom, because everybody’s now offering a corporate card, because the infrastructure to be able to offer a card based-product, Stripe has an issue in platform, market_ has an issue in platform, marketing_ has an issue in platform, and everybody is now like, “I have a card, use my card, use my card, use my card.” Everybody’s kind of, “Use my card.” And so, we never positioned ourselves as a corporate card company, and so we never made noise as if we are a better corporate card, come use us. And, our long-term strategy is also not, yeah, we do have a corporate card product, but we have partnerships in the works that we’re going to integrate more deeply with other [inaudible].
Scott:	Oh, that’s cool.
Thejo:	And so, but we have always focused on the software layer of things, like deeply understanding the problem of how money gets spent inside of businesses. How does the combination happen around the decision to spend money, how you pay the vendor, how the accounting operations happen, how does it all get synced to the GL. Like, we’re really focused on going deep on that front. So, our position has always been, look, you got to build the software workflows and bring it all together in a single platform. And, that’s what customers will actually value and pay for. Right?
Scott:	Yeah.
Thejo:	And so, that’s the other thing I think, no, we’ll see where the market goes, but my prediction has always been maybe that’s a, if you look at dollars invested, it’s certainly a contrarian view, but we always charged for our software. So, we have said that, “Look, we will go deep and then we think that there’s value in the software platform that we provided and we’re going to charge for it.” But, the majority of the money that’s been invested in this space in the last few years has gone into companies that give away the product for free and make money off the interchange and things like that.
Scott:	Yeah, interchange is like the big subsidy business model thing, which I’m always wondering when that’s going to collapse and when people are going to start competing on interchange dollars too. But, I don’t know. I was going to talk about like your target segment, because we work with… We start with a lot of seed stage and then Series A companies, and we go with them for a while to like Series C usually. We still have some really big clients, but where’s the entry point for Airbase now and where you see that in the future?
Thejo:	Yeah. Look so far, we’ve been really focused on that mid-market segments, 50 to a thousand employees are how I think about the mid-market, and that’s what we’ve been focused on. We have some fantastic customers that we have in that segment, and that’s what we’ve traditionally focused on, but for at least the last six to eight months, we’ve started our efforts to maybe catch those customers who will ultimately become mid-market customers as early in the life cycle as possible. And so, we have started to do more of that, invest more of that. A small example of that is when you’re working purely with a mid-market company, you’re not onboarding as many customers, you’re not going and saying, “I’ve got a 1000, 10 employee companies,” and so your onboarding process has to be fully automated, and buttoned down and that kind of stuff. We didn’t have to care about those sorts of things, so we did like very heavy… We still do very heavy touch onboarding. We help customers, we get on calls with them, we make them very happy, we set things up for them and those kinds of things. And we’re obviously, as we go into the lower end of the market and we want to get these customers as early as possible, you can’t always do that at scale. And so, we’ve been investing in those areas to automate stuff and things like that.
Scott:	Well, it’s probably a good way for you to figure out the kinks in the system and get a lot of feedback quickly. And also, the mid-market companies aren’t messing around, like those are like a 100-person companies at least, they can’t tolerate something that’s not working because they have real board meetings, and real reporting and that kind of stuff.
Thejo:	Yeah. And it’s real, because we have public companies, we have a bunch of companies with this [inaudible] craze or about [inaudible]. And so, Airbase is a very critical piece of infrastructure for them, because while we are in the software layer or where a lot of orchestration of how spend happens in the business takes place, we take care of payments too, the money is literally flowing through us. Right?
Scott:	Yeah.
Thejo:	And so, we are kind of doing large amounts of payment volume. We are, from that perspective, it is mission critical, right, so you cannot have those shutdowns and impact the business. Because for a lot of these businesses, they’re paying huge amounts of money to Google Ads, or Facebook Ads, or things like that. And, if the system goes down for even a little bit, that’s the revenue right there for them. And so, it’s like a very… From a complexity and reliability perspective, that’s a challenge that we cannot not pay attention to.
Scott:	Hey, it’s Scott Orn at Kruze Consulting. And before we get back to the podcast, quick shout out to ChartHop. ChartHop is one of my favorite new SaaS tools on the market. And basically, what ChartHop does, is it puts your org chart in the cloud. And, I always like to say it brings transparency to your organization. And so, everyone in your organization can see who they report to, they can see the full or org chart of the company, and how their group relates to other groups. It also has a lot of information on the individuals in the company. And so, you can click on the ChartHop profile and just get like where people live, their experience, Slack handles, all this kind of stuff. And, it’s just a really great tool. The other thing is ChartHop has started doing some cool stuff around compensation and budgeting planning. And so, you can actually start seeing like what the cost structure of the company will look like, certain kinds of scenarios. So, I’m loving ChartHop, check it out, chartop.com. We use it at Kruze, we really like it and I can’t recommend it enough. All right. Back to the podcast. Yeah. No, that makes sense. And just for the audience’s benefit, one thing that’s really cool about you guys, did you guys integrate into… You talked about kind of getting things into the general ledger, I always think of like the solar system is a nice analogy for the accounting world, and like the general ledger is like QuickBooks and NetSuite, in our world, they’re kind of like the sun and everything else kind of floats around that. So, for those that don’t know, like Airbase integrates into those systems and makes it a lot easier for the accounting team.
Thejo:	See, that’s a huge part of the draw, which is the deep integrations that we have now with the general ledger. Because, I was talking earlier about how unfortunately accountants are forced to end up doing a bunch of low-value work, and how we want to kind of completely eliminate that. And, how do you automate a way, the majority of spend related accounting, so that throughout the month, as the money is being spent in as many cases as possible, the accounting is taken care of itself.
Scott:	Yeah.
Thejo:	If you have a great end-to-end system of how requests are approved, and then the request is placed approved, you’re setting up the right controls and payment methods in the system. And as the vendors are being paid, if that is done correctly upfront, as and when the payments are going through, you can just record it exactly the way it should be in the GL without the accountant having to do anything. And so, that’s a huge draw and to do that well, you need these deep integrations into the general ledger, and we are putting a huge amount of effort on that kind of stuff. And that is where, of course, accounting as a profession is all about the details, but especially when it comes to integrating with general ledgers, and how you make those entries, and how you book those entries, and all of those are all about the details. And I guess, one of the things that our customers really like and appreciate about us is the kind of the depth to which we go when we build these integrations, and the reliability, and the investment we make in that. And, a simple example is that one of the things that we do with our NetSuite users absolutely love is, there’s a naked amortization module in NetSuite. And pretty much every other system, and this is also the user experience and attention to detail kind of thing, what you have to do when you are prepaying for something, is you have to then sync it into NetSuite. Remember to go into NetSuite, you have to set up the amortization schedule over there, and there’s a whole bunch of prepayments happening if you forget to do it, okay, that’s a mistake, you have to go fix that [inaudible] some other time. And so, we’ve actually, something we did was figure out a way to build that deep integration, so that we actually surface your amortization templates and start date, end date, all of that. So, when you’re processing a transaction within Airbase, you just tell us that correctly, you hit sync with NetSuite. We go set everything up correctly or they’re in NetSuite. And, there are like a hundred details like that, where you got to go and focus on the details to make that a really good experience. It’s not just about, “Hey, just use my platform to spend money, and I just dumped some journal entries into your GL and you go deal with the mess.” We have learned that. And the larger a company gets, the more accounting teams really care about the details, because if we don’t get the details right, that’s a whole bunch of extra work for them when they are trying to close the books to clean up the mess [inaudible] making in the GL.
Scott:	I love it. You’re right though. Also, on the point of we kind of joke internally that one error out of 999 things, 0.1% error rate, the clients still notice that and they’re like, “Hey, what’s a matter?” “Why…” It’s like, “Well, gosh, we got 999 things right, and there’s one thing that’s in the wrong category or the amortization schedule side of it.” So, we strive for that a 100%. But, it’s a very demanding field. I think one of the cool things I liked about Airbase was just your marketing program where it’s all focused on controllers, and VP of finances, and CFOs. In San Francisco, you have a really cool ad campaign going where it’s like, “Make your controller smile, use Airbase,” which I really love.
Thejo:	Yeah. And, because everything we do is about that thing, which is about making our customers happy, which is the controllers and the accountants and the finance team.
Scott:	Yeah.
Thejo:	Maybe because we’re focused on slightly larger companies or mid-market companies. I know that’s who sell to. Those are our champions. That’s who we kind of go in and talk to Airbase about and they are our champions. And so, we are focused on them primarily. I can understand why, if you are focused on much smaller companies, you don’t have a finance team inside the company, so you are focused on selling to the founders and focused on selling to CEO’s. And, that’s also part of the reason why a lot of the products focused at being sold to founders and CEOs are a lot more simplistic. So, they’re like, “Here’s a corporate card, just…” And, there’s a little bit more of a consumer mindset in the decision-making. What you end up picking for the platform, it’s more of a, “Hey, what are the points I’m getting?” “What is the cash back I’m getting?” It’s more of the decision that you make when you get a personal car fares, things like that. But, the people who do the work day in and day out as a controller, as an accountant, they care about many other things in addition to what is my cash back, or rewards or whatever it is. They care about the holistic problem. It’s a [inaudible].
Scott:	Oh, totally.
Thejo:	It’s a business problem that they’re solving and streamlining that end-to-end is far more valuable, and that’s the message that we go to customer with. It will be an interesting evolution for us as we focus on those smaller customers to figure out how do we convince the CEOs, and the founders, and the people who will make the decision to adopt Airbase at the earliest stages? Like, how do you convince them that look, getting the right system in place from the get-go is going to be so important as you scale, ripping things out and putting whole systems in and all that as you’re scaling is so painful. And, if you can award it, you should try awarding it. And, our goal is to kind of be that one system that you use to spend money from founding to IPO essentially in it. And so, that’s kind of what we’ve delivered. And of course, part of the way and if we want to solve that problem is by relying on folks like you, and having the expert recommend to the founders that, “Hey, trust me, this is the system that you’re a full-time finance team, who you will inevitably hire at some point, will we love to use.” Right?
Scott:	Yeah. Well, you guys have some really… I really encourage the audience to check out your website, because you guys have some amazing customer testimonial videos. I think there’s a Gusto one there, where it’s Gusto internally is using you guys. And, I love that video. It’s the control. I forget who it is. It’s like a controller Gusto. And, we’re one of Gusto’s biggest channel partners in the country. And so, that caught my attention because I was like, “Oh, Gusto’s using this to close their books, Airbase is doing something right.” Which then led me down to having this conversation, but also talking to your sales teams. And, I know we’re working more closely together as we go here, but folks should check out, it’s great to hear it from you, but it’s also great to hear it from some of your customers in the evangelist like, the Gusto person, who’s a controller. Because, he’s talking about how fast they can close their books and things like that. And for a finance person, like a lot of times you’re measured on how fast you can close your books, how accurate you are, how quickly you can get the reporting out to the executive team and the board. And then, you’re also… The other kind of really nice thing about Airbase is just like this approval flow, and being able to like make sure that people aren’t spending money they shouldn’t be spending, which maybe talk about that a little bit, just kind of how it works for the end users.
Thejo:	Yeah. So, from an end user perspective, look, the motivations and goals of the finance and accounting team aren’t always exactly your motivations and goals, you just want to spend the money, get going, don’t get in my way, I have to have something to do. And, you’re working towards that. And so, you have to kind of make sure that as the system that the finance and accounting teams are trying to use to get those controls in place, you’re not getting in the way of the rest of the team, and you don’t want to end up in a place where the team hates the solution that you put in place. And, that’s something we have heard over and over again from our customers or the primary buyers of Airbase, which is the finance and accounting teams that… And, that’s thankfully what we’ve heard they appreciate is. We pay attention to that experience also. For example, when you’re placing the request, how do you make that as in and out as quickly as possible without having to ask you to fill up a form with 20 fields in it, and how do you [inaudible] 20 seconds? Can I just tell you what I want to buy? And, also surfacing information like, who has to approve this thing? Like, how do you put it right front and center, so that if it’s blocked on somebody, I could actually maybe ping them and ask for clarification. You don’t want a system that just disappears into the ether and like, “Why did I put this request in two weeks ago like, what the hell is happening?” And, you don’t want to give people that experience. And also, your turn around time to approvals, like how do you make sure that that is as easy as possible? And so, we kind of send out email notifications where there’s an approve, deny button right there in email, or there’s a Slack notification button. There’s a mobile app, all of these different places where it should be hard for an approver to miss the fact that somebody is asking to spend money. And, that is the other… I saw this first hand, right. It almost seemed like my finance team spent half their time chasing the managers in the company saying, “Please log in to bill.com and approve, please log into bill.com and approve.” And, there’s all these cues that get built up and such a waste of time. And so, you have to kind of help, not just the end users get a much better experience, because everybody’s just trying to do their job. And, it is partly a failing of the tools, and then the tool chain that companies get to use, and that user focus, and then focus on a fantastic user experiences, I think can just make the experience so much better for everyone.
Scott:	Well, you’ve done really, really well. We’re excited about Airbase. Again, we’re seeing you guys kind of interested thinking about us, so we can see all the systems that everyone’s using. So, we know people are using Airbase, so that’s why I wanted to have the conversation. And so, maybe you could just tell everyone how they can find the company, how to get involved, or how to engage if they’re interested in getting a demo, talking to a sales person or just how to get going on Airbase.
Thejo:	No, that’s great. Thank you. And, you can learn all about us on airbase.com, that’s our website, lots of buttons all over the website to make it easy for people to reach out if they’re interested in learning more. And so, we have strict SLA’s internally on how quickly we get back to people. We pride ourselves on that. So, please test us on that. If you want to connect with me directly, I’m on LinkedIn. You can find me, they joke all day and I’d love to connect with you. And Scott, thank you for having me.
Scott:	My pleasure. You built something super cool and I’m excited to see where you go, and looking forward to working with you even closer over the years.
Thejo:	No, looking forward to it and thank you for taking the time again. Good to connect with you after all these years. And, thank you.
Scott:	All right, buddy. Thank you so much.
Singer:	(singing) It’s Kruze Consulting Founders and Friends with your host, Scotty Orn.

Thejo Kote, Founder of Airbase, a cloud-based business spend management software company

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