Crypto ‘liquidity crisis’: When withdrawals get stopped

But the emails have caused confusion, drawing heavy criticism online. “This Brex Account Shutdown Sucks” a Twitter post Lily.

“It’s obviously a difficult and painful day,” Dubugras said.

He explained what happened in an interview with Protocol, explaining why Brex initially decided to expand its reach into more traditional businesses and why it ultimately decided to pull out of a “huge” market.

This interview has been edited for brevity and clarity.

Start by telling us what happened. Some people have interpreted this as a move away from startups.

Let me share a bit of historical context. We created a company in 2017 focused on serving startups. We may underwrite them based on cash balances. We gave them a credit card based on that. It worked really well.

Then in late 2019, early 2020, we were like, “OK, how can we grow from here? What is the next phase of products? Small brick-and-mortar businesses seemed like a good way to go. So we built a lot of our systems to be able to integrate them.

I would say we were quite surprised by the amount. There are tens of thousands of startups in the United States versus tens of millions of small businesses. The scale this took on was very, very large. We thought everything would be fine; we’re just going to invest more in providing them with exceptional service.

At the same time, another effect was taking place. Our main customers, the startups, were starting to grow. As they got older, they started having all these new needs. They say, “Listen, we need you to solve these new expense management and overall management needs that I have. [expansion].”

What we realized was that we couldn’t do both at the same time. We couldn’t serve millions of small businesses in the United States and create products for the needs of our best and growing businesses.

We made the painful decision to leave this type of traditional brick-and-mortar small business in order to focus on start-ups. Our startup clients demand that we can grow with them for a longer period of time.

How do you define a startup and the companies you plan to continue serving?

It’s not a perfect definition. Our definition is anyone who has received any type of funding from venture capital, angel investors, accelerators, any type of professional funding. This is the startup we remain deeply focused and committed to.

They’re mostly tech startups, right?

Mainly tech startups.

How important has the traditional SME segment been to your business?

I would say the number of businesses we have onboarded each month has increased 25 times. So think about that and the impact it has on a business.

What are these companies usually? Restaurants or retail stores?

Restaurants, retail businesses, bakeries, florists, hairdressers, small design agencies. Small professional services, two-person design offices, things like that.

What if I own a business in these industries and was a customer, what should I do?

You need to transfer your bank account to another provider.

You will no longer serve my business needs.

To correct. Again, the reason we do this is so we can focus more on our primary customer. We wish we could serve everyone and do a great job for everyone. But we made the difficult choice to focus on our starting point.

What percentage of your total activity will be affected?

I don’t think we have any numbers to share there.

Are they hundreds of companies or thousands of companies?

What are we disembarking? It’s definitely in the tens of thousands.

Obviously, there has been some confusion. Can you tell us how the plan was discussed and executed?

Yeah, absolutely. Look, that’s something that honestly, for a very long time, we tried not to do. Our original plan was: We’re going to do both. As an organization, we are very capable. We have a lot of people. We have lots of resources. We’re just going to rack our brains and do both. Both are amazing markets. These are great business opportunities. We tried this for the majority of 2021.

Then at the end of 2021, we got to a point where we started to ask ourselves: what do we do from here? Are we sacrificing the experience for our primary customer? Are we allowing our best customers to leave because we are not meeting their needs? Are we building more products for everyone? Should we double the workforce? What are we doing?

And that’s the only solution we could offer. We were not willing to sacrifice the quality of our service for our main customer. Especially in this macroeconomic environment, our core business pushed us to go even faster. They were like, “Hey, I need to hire more people around the world. Can you build more global stuff? I want to control my spending more. Can you create more controls and more expense management elements? »

They pushed us to go faster in many things. It was really difficult to do both at the same time.

And we’re like, ‘We have to do this. We will do it once. So we are not going to start relocating a little now and a little in two months, a little in three months. We’re going to do it all at once, a clean cut and make it very clear to everyone what we’re focusing on.

On execution, I would say, probably if I had to go back, I would have been clearer on the distinction between startups and small businesses and what qualifies each. Looking back, I still think it was the right decision for our main customer.

What did you mean, there should have been a clear definition?

Have we misclassified a company? Most likely. That’s a lot of customers. We are not perfect. If we find out we made a mistake and they fit our definition, we’ll support it. It is therefore reversible. We will support them.

But that being said, I think when we talk about small businesses, I think some people interpret it as startups as well, which is really bad for us because we’re doing this to support startups even better. This is the completely opposite message we were trying to send.

There are a lot of gray areas. You talked about design companies that could serve tech startups.

This is why we use venture capital as a criterion. If professional investors are investing in your business, these are our criteria.

It will be disconcerting to some that you have all this demand, customers who want your service, and you say, “No, we can’t serve you.”

The needs of these customers are actually quite different. It wasn’t that they were asking the same thing of us, was it? Startups were asking, “Hey, can you help us hire faster globally?” Can you help me control my expenses with software? Small customers ask, “Hey, can you give me a line of credit to weather the storm?” Can you advance my claims? Can you give me lease financing? »

They were completely different needs.

But aren’t their needs somehow simpler? Why were you unable to maintain this segment of the business given the size of the SME market?

It’s huge, yeah. It’s a great deal. It is not simpler, in fact. It’s not more complicated either. It’s just different. When we onboard a startup, we can have top-notch service for them, talk to all of them on the phone, help them through everything. With a small business, it’s not economical to do because there are so many. There are tens of thousands, maybe millions of them, so you have to have all of your systems extremely automated, extremely perfect. You can’t hold hands. Everything has to be super, super scalable. We could eventually get there, but we have to invest a lot of resources to get it right so we can keep evolving.

Fintech lenders targeting traditional small businesses emerged because traditional banks said it was too expensive to meet their needs.

It’s true. There are amazing companies that focus on just that. If you look at Square, their whole stuff does it super scalable and cheaper. It’s their business. Our profession has a nuance. Our clients are growing very quickly.

With Square, if their main customer is the restaurant or the coffee shop, they won’t be saying in two or three years, “OK, now we’re Starbucks. I need all these new things. Our clients in three years are like, “I need all these new things because I’ve grown up,” right? The fact that they grow forces us to follow them.

The story now is that you’re moving away from mom-and-pop shops, restaurants, retail stores, and all those businesses that make up a big part of the SME sector. How do you think about this?

You get this advice when you’re a founder, that focus is very important. When we started the company, we were 20 people and we were like, “Hey, we built this product with 20 people. Why can’t we just build all these other things with 20 others? »

You think you can do all of these things at the same time. I think the reflection and the learning for me is that you can do less things at the same time and you have to focus, otherwise you won’t do one or the other very well.

Again, it’s really painful. Because we understand the stress we are placing on many small businesses, especially during this time. But we hope you know people understand that it is in order to serve our main customer.

And we wouldn’t be able to serve those small businesses well because we’re not making the new products that they need. And there are so many amazing companies and fintechs out there that their whole purpose is to serve them, so they’d probably be better off betting on a partner that focuses exclusively on that.

What are the next steps for you, given this change?

I think the most urgent thing is to first remind our key customers that they are safe. We are not going to leave their market. And it was all for them. That’s probably number 1. The second thing is to be extremely supportive and use the majority of our resources over the next two months for customers who need to transition.

I wonder if you’ve had a conversation with a restaurant owner or a retail store owner or any small business owner who during the pandemic signed up with you and now you’re saying, “We can’t to serve “.

I have, yes. And it’s painful, because we asked them to bet on us at the time. And now we’re eliminating them. It is therefore very painful for us and for them. So we’re very empathetic and we’re going to do whatever we can to help them make the transition.

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