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

Intro (0s)

• Pedro Franceschi believes that the initial conditions, such as finding the right idea and the right team, are highly underestimated when building a company.
• He emphasizes the importance of finding a good idea and the challenges of pivoting to a different idea later on.
• Pedro Franceschi shares his insights on what Brex needs to do to become a public company.
• He highlights the importance of having a clear mission and vision, as well as a strong team and culture.
• Pedro emphasizes the need for Brex to focus on its core business and avoid distractions.
• He also stresses the importance of building a sustainable business model and having a long-term perspective.
• Pedro believes that Brex has the potential to be a great company, but it needs to make the right decisions and execute well in order to achieve its goals.

What Are People Underestimating? (49s)

• Mental health is often underestimated and is a significant challenge for entrepreneurs. Founders should learn to be kind to themselves and design their lives to endure the difficulties of entrepreneurship to avoid burnout.
• Successful founders are those who can endure tough times and have support systems in place.
• Liquidity should be viewed as an ongoing aspect of a company's journey, rather than a singular event like an IPO. Removing the taboo around liquidity allows people to incorporate it into their lives earlier.

Learning Work Ethic and Mindset (6m19s)

• Pedro Franceschi grew up in Brazil and started coding at a young age.
• His mother noticed he was spending a lot of time on the computer and could have chosen to restrict his screen time.
• Instead, she recognized that he was building something productive and allowed him to continue.
• Pedro started working at the age of 12, and his mother initially objected but eventually supported his decision.
• Brex needs to focus on profitability and cash flow generation.
• The company should continue to invest in growth, but it needs to do so in a way that is sustainable.
• Brex needs to build a strong team and culture.
• The company needs to be prepared for the challenges of being a public company.

Is Early Money-Making a Sign of a Great Entrepreneur? (8m23s)

• Pedro Franceschi believes that great entrepreneurs make money early in their careers.
• He cites his own experience of making $200k at age 14 by selling an app on the Cydia store.
• He also mentions how his first company in Brazil grew from zero to processing billions of dollars in GMV with only $300k in funding.
• This experience wired his brain to focus on creating value for customers and generating revenue.

The Impact of Raising Too Much Capital (10m47s)

• Pedro Franceschi reflects on Brex's journey and the impact of raising a lot of capital.
• He acknowledges that Brex started behaving like a big company and lost some of its hustle and scrappiness.
• He believes that the biggest learning is to scale the business while maintaining the mentality of a small company.
• This involves keeping leaders close to the ground, understanding customer decisions, and unlearning processes that pull the company away from thinking like a small company.
• Fundraising and hiring a lot of people can contribute to the loss of a small company mindset, but it's ultimately the mindset that needs to be preserved.

The Moment Pedro Became a CEO (12m37s)

• Pedro and Enrique decided to make Pedro the CEO.
• Two reasons for the decision:
  • Simplify how the company operates at every level.
  • Prepare for an eventual IPO by having a traditional C structure (Chairman and CEO).
• An investor mentioned that one of Pedro's weaknesses is struggling to find his voice.
• Pedro reflects on a conversation with Brian Chesky:
  • Founders can become apologetic as their company scales.
  • Pedro decided to embrace his authentic approach to running the company.
• Pedro believes that being authentic leads to a company that reflects his way of thinking.
• Pedro challenges the traditional belief that the CEO's job is to hire a team and let them manage everything.
• He believes the CEO's job is to make the company successful by focusing on a few critical things that matter.
• The best CEOs have a deep understanding of what matters and leverage structural points to improve outcomes.

Bottleneck Strategies for Founders (16m37s)

• Founders should identify the single bottleneck that limits their growth.
• The bottleneck could be anything, such as lack of an enterprise product, insufficient sales team, or ineffective marketing.
• Once the bottleneck is identified, founders should focus 70% of their time on removing it.
• This may involve delegating other tasks and responsibilities to team members.
• Identifying and focusing on the bottleneck can reduce anxiety and create a liberating state of focus.
• The current bottleneck for Brex is demand generation in the mid-market.

What Pedro Regrets Doing and Not Doing (20m59s)

• Believed Brex could do more than it actually could.
• Underestimated the importance of leadership bandwidth and how it limits the number of things a company can do.
• Spent a lot of time focusing on the founder but should have focused more on the finance team earlier.
• Pedro believes they hired a good leadership team.
• They spent a lot of time on it and it wasn't an accident.

Assessing Criticisms of Ramp's Marketing Strategy (24m54s)

• Brex's success is attributed to direct questioning during product marketing and its customer-centric approach.
• Brex's live budget feature provides real-time insights for better decision-making and resource allocation, allowing customers to optimize spending rather than just cut costs.
• Brex emphasizes balancing logical and creative thinking in branding and marketing, and its marketing campaign should focus on relatability and storytelling, highlighting how it saves customers time and allows them to focus on their missions.
• Despite investing heavily in product development, Brex realized the need to focus on delivering a cohesive experience that automates tasks and showcases the product's benefits.
• Former CEO Pedro Franceschi stresses the importance of a single roadmap and a clear narrative for the entire company, emphasizing that "disagree and commit" is not fully possible but can be achieved when the collective good is prioritized.

Steps Brex Needs to Take for a Successful IPO (37m19s)

• Brex needs to increase predictability in its business model.
• Brex needs to be more ruthless in looking at its numbers.
• Brex needs to look at metrics in the most punitive way possible.
• Brex needs to understand the economic engine of the business in a deliberate way.
• Pedro believes that companies should look at CAC in the most punitive way possible.
• CAC should include all costs associated with acquiring a customer, including sales and marketing costs, office overhead, brand spend, and management overhead.
• Many companies dance around these numbers and present a lower CAC than they actually have.
• Investors will look at CAC and unit economics when evaluating a company.

Evolving Customer Loyalty Amid Rising Competition (39m45s)

• Brex is considered valuable due to low customer churn and the value customers receive from its platform and automation.
• Contrary to popular belief, financial services are not entirely commoditized, especially for complex enterprise use cases.
• Brex excels in providing global card solutions for public companies operating internationally, making it one of only three companies globally with such capabilities.
• The card company market is not a winner-takes-all scenario, and its dynamics differ from marketplaces where incremental units inherently enhance the product.
• Brex's pricing power stems from the collective value it offers, rather than competing solely on cash back, rebates, or credit limits.
• Brex positions itself as the premium solution, prioritizing quality over low cost, which fosters a unique company culture and customer engagement.
• Customers recognize the value of Brex's services and are willing to pay for the premium support and exceptional level of service they receive.
• Brex's pricing strategy has been advantageous, enabling them to focus on delivering the best solution without solely competing on price.

Pinpointing the Low Point in Company Culture (44m59s)

• In 2021, Brex pivoted aggressively towards the Enterprise, causing a challenging cultural shift.
• The company realized the importance of prioritizing and focusing on serving their existing customers well before expanding to serve a broader market.
• Many of their startup customers were growing and becoming larger companies, requiring services that Brex didn't have at the time.
• The decision to pivot and serve Enterprise customers was made to meet the needs of their existing customers and was seen as the most customer-focused approach.
• The pivot was a painful but valuable learning experience, emphasizing the significance of customer focus.

Quick-Fire Round (46m19s)

• Pedro Franceschi, CEO of Brex, values individual contributor skills in senior leadership positions and wants Elon Musk on his board to drive aggression and intensity.
• Brex's memorable first investor meeting was with YC, who initially disliked their VR idea but still invested.
• Franceschi advises founders to be unapologetic about their approach, as they have the most visibility and context.
• Despite the challenges, he believes being a public company CEO is necessary to realize Brex's potential.
• Franceschi respects American Express's franchise but sees their product as outdated and lacking software and controls.
• He identifies significant disruption potential in fintech, particularly in the underlying infrastructure of global money movement.
• Franceschi stresses the importance of initial conditions and finding a good idea when starting a company, as pivoting becomes harder with traction.
• He emphasizes the need to get the initial part right for long-term success and encourages founders to find purpose and joy in the process.
• Franceschi believes authenticity and personal fulfillment are crucial for a company's overall success.