Invest Like the Best with Patrick O'Shaughnessy
· Karim Atiyeh, Patrick O'Shaughnessy
It's oh, we really like what you built there over the past couple months. We want to try it. And they tried that. It's oh, we really like what you've built around AP Automation. We really want to try it. And before you know it, they're actually trying more and more of the product, driving a lot more value. And they're very excited to roll it out not only to more users in their business, but frankly to more of the finance workflows that they're experiencing. So that Land and Expand Motion really started to become real. I'd say two and a half or three years into the company where it was no longer this cool looking card with a nice UX that integrated it with your receipts, but we actually were building AP Automation software, accounting automation software, et cetera. [00:00:00] S0: How do you think about the transition from a business that's a total payment volume business, where you're basically making more money as more is spent on the cards, to something that looks more like a blended TPV and SaaS business? So I know your SaaS revenue is exploding. Talk about that transition. Why go that direction? Why not just try to push it all through TPV?
· Patrick O'Shaughnessy, Karim Atiyeh
[00:00:00] S0: How do you think about the transition from a business that's a total payment volume business, where you're basically making more money as more is spent on the cards, to something that looks more like a blended TPV and SaaS business? So I know your SaaS revenue is exploding. Talk about that transition. Why go that direction? Why not just try to push it all through TPV? [00:00:00] S1: As we are saying earlier, it's a beautiful and very simple business model to be able to just put the cards in the hands of somebody and the more they use it, the more revenue you get. And you're just essentially focused on building great software so that they're incentivized to use it. We actually want businesses to spend less. Unlike most other card companies, we're not here to put rewards in front of them that will incentivize them to spend more. Our view is build software that helps them spend less and as a result they'll use your card and you get more share of wallet but— [00:00:00] S0: They're saving money.
· Karim Atiyeh
[00:00:00] S1: They're saving money. The best ways to help them save money is to help them not make transactions that they should have never made, as opposed to giving them points and rewards. That's a beautiful model. The limits of that model though is that the amount of money that businesses spend on card does not scale linearly with the complexity of that business. So small businesses tend to run everything through card. So it works well for small businesses. But as you mature, the larger businesses tend to move a lot more of their purchasing and spending through essentially bill payments and procurement systems and not as much through cards. So if you'll try to visualize what does card spend look in a business as a, let's say one dimension you have card spend, on the other dimension you have either complexity of the business or number of employees, or however you want to chart it. It starts to plateau at point when you really think about what a real skill is at. Ramp is we're really good at, let's say, reducing the bureaucracy, complexity, time waste in a system, a company and building software to do that. And that has a lot of value for really large businesses. So what this means is our mechanism for capturing value, which is small percentage of card transaction breaks for large businesses because we drive a lot of value for them, we built a lot of great software for them, but we're not able to capture any of that value for really, really large businesses because our revenue mechanism is not scaling. So that's when we started thinking about, okay, great, what is the right value capture mechanism? When most of our product and engineering teams are focused on driving value for these complex businesses and, well, we need to be able to charge for software. And frankly, if we are charging for software, it will also guide us better towards the right things to do. Right? You get a feedback signal from the market that they are willing to pay for certain products because they get value from them. And that's when we decided to transition. There was a lot of fear when we did, I'd say internally, because you have this beautiful business model that's working really well and everyone's a little freaked out. Are people going to be willing to pay for it? Is it going to hurt our conversion? Is it going to hurt our growth?
· Karim Atiyeh
And it turns out that not only did it not do that, in many ways it accelerated that growth because it incentivized our sales team to mention those products, talk about them, and it incentivized our customers to be a lot more demanding and responsive. And as a result, they helped us essentially guide our roadmap a lot better than if product was free and no one cared about it. A lot of our focus on our engineering teams right now is on continuing to build these products that drive value for customers and capture value through software pricing and software revenue. And in many ways, I mean, we're still trying to figure out the right way to monetize and price for some of the agents that we're working on and building that drive more value. I think a lot of companies are really trying to figure out, how do you charge for work? How do you price for work? And do you have a theory? You want to charge for complexity of the tasks that the agent's been able to solve. And you are starting to see more and more business models where you're essentially charging for the time that the agent is spending on a task or the number of tokens that they're using, which is fine. I worry a little bit about that model sometimes incentivizing the engineering team to not be as efficient as possible with their use of AI. If you're a company charging for how much time the agent is spending on the task, are you not incentivized to just use lots of CPU cycles and not make it super efficient? So I worry about that a lot. That's why I don't really love that model. I'm not quite sure exactly how it's going to look.
· Patrick O'Shaughnessy
[00:00:00] S0: I'd love to ask you about a few of your kind of general views of company building and the future. One of them that you and I have talked about before is this view that a lot of the best company builders will be very technical in this era. Say more about that.
· Karim Atiyeh
[00:00:00] S1: So I think we're at a interesting junction right now. And the best analogy that I can give is the Ford one where, if you had asked people before cars what they wanted, they would have said faster horses. We're probably at the juncture right now where you ask customers what they want from your products and they'll say, oh, I want an additional widget here, an additional button there. They don't realize that the car to their faster horse is possible. We as a company should be obsessing over what do customers really want? Well, they want to get from point A to point B, and what is the best way to get them there. It's, well, it's to build a car for them. And you ask questions, who even realizes that that car is something that is possible? And what it might look like is, well, the people who came up with the technology for how an engine functions and what it's capable of doing and what is possible. And these tend to be more technical people in general. I think the technical folks are more likely to see the possibilities in terms of product than non-technical folks. So as a result, particularly right now, technical folks can be very impactful in other disciplines because they see the possibilities better than other experts might. And the other side of it is the gap between not having subject matter expertise in a domain in say in marketing or healthcare or education, and having it is the smallest it's ever been. The only thing stopping you from getting that knowledge is your ability to learn and to ask the right questions of an LLM that can help you become an expert a lot quicker than you would otherwise be. I joke now that I'm a better doctor than I've ever been, but I'm not a doctor. I'm a better lawyer than I've ever been, but I'm not a lawyer. And in practice that means that when I'm having a conversation with my doctor, I'm a lot more knowledgeable and I know to ask the right questions. When I'm having a conversation with a lawyer, they're a lot more efficient and I'm asking the right questions. And as a result, I think engineers that know what is possible can help us build the future of our product much better for our customers. Even though they have not done procurement before, they have not done AP before, they have not done accounting before, et cetera.