“VC money is a means, not an end. We are fanatically focused on building the company and will take outside investment when the time is right.”

Interview by Kevin Ohashi of Ohashi Media
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Parand Darugar is the Founder and CEO of Xpenser.  Parand comes from a long history of tech startups and heavyweights.  At his last job we was one of the core architects of the Panama project at Yahoo!  He also has been a co-founder and chief architect at two other technology companies: Blue Titan Software and VelociGen Inc.  Parand comes from a computer science background.  He received his BS and MS from UCSD with a focus on Machine Learning.  Parand’s latest company is Xpenser.

Xpenser is an expense tracking and management service.  The goal is to allow anyone to track and manage their expenses using any device from anywhere.  They have integrated voice, email, sms, IM, Twitter, Web and an iPhone app into Xpenser to meet this goal.  Furthermore, Xpenser allows you to manage this data in a way that makes sense with tagging, per-client routing and more!

MO:
Xpenser seems like a great idea and an easy way to track my expenses.  You are planning to use a freemium model according to your FAQ.  What sort of extras/services will be added for premium accounts?

Parand:
In short: we make our money on businesses who use Xpenser.

The traditional freemium model relies on putting limits on the capacity or capabilities of free plans. While this a fine model, we’ve seen a very nice alternative model emerge: most of our users use Xpenser for business expense tracking, and hence need capabilities for submission and approval workflows, policies, employee/manager relationships, account management, company-wide categories, reporting, audit trails, and so forth.

Our Xpenser for Business product provides the capabilities needed to use Xpenser as the expense, receipt, mileage, and time management solution for your business. So the free product can be used by individuals, but businesses need the premium product.

The beauty of this model is that the free users act as evangelists for the business product, helping bring us into their companies. One of our first success stories came from an individual user who happened to be the president of a multi-national company. He liked Xpenser so much he asked if he could use it for all of his employees, and the rest is history.

MO:
Who is using Xpenser?  We all want to say ‘everyone’ but who are you noticing are getting the most use/value out of your service?  Was it the group you intended?  How do you find these people and market to them?

Parand:
Our core users are small to medium businesses (20-1000 employees) that regularly incur business expenses or log time or mileage . We do have some large customers, but those have come to us opportunistically.

Our initial thought was that Xpenser would be most appealing to very small businesses and freelancers. While that is certainly a large part of our user base, we’ve been surprised at how quickly we moved into the medium sized business market – instead of starting small and growing to accommodate larger companies, our first paying customers were medium sized businesses. We’re working our way back down to the smaller businesses, as well as extending features for some of the larger customers.

Most of our customers come to us via the favorable coverage we get in the blogs or twitter, and via word of mouth. We have the advantage that most of the existing solutions are fairly horrible, so when people see a good product they tend to sing about it. They sign up for the free product, see how easy it is, and naturally move to the Business product.

MO:
You worked at Yahoo deep inside the advertising products they delivered.  Looking back, it seems that Yahoo’s advertising plans didn’t work out that well (with them using Microsoft’s ads now).  What were/are the biggest challenges to competing with Google for advertising? What sort of innovations do you think will change the online advertising landscape over the next few years?

I was most curious about what you thought of the way Panama played out and how Yahoo has now given up serving ads in favor of using Bing.  There are two perspectives I suppose (maybe you can think of more, or think differently about it being on the inside), technology and business.  The technology side of Panama seemed to be a ‘me-too’ adjustments towards Google’s ad serving model to serve better ads.  The business perspective is, better ad serving = more money.  Personally, I would find it interesting to know what kind of discussions and debates there are from someone deeply involved in choosing the basic approaches and technologies for ad serving and why you decided to do what you did.  The businessman inside me wants to know if you think the Panama approach really paid off or if there are other/better ways to monetize search.

Parand:
Panama was a fantastic project, with a lot of very smart, driven people working very hard towards a common goal. To understand how things panned out, it helps to know some background:

Advertising revenue is driven by two core pieces: how many customers are walking through the door (the search market share), and how much money is made per customer (the Panama advertising systems).

The two pieces have a very important interplay: advertising is priced on an auction model, wherein the price is determined by what advertisers bid on keywords.

The more advertisers, the more bids, and the higher the prices. This is somewhat independent of the advertising technology; it’s a matter of how many advertisers participate in your auction.

Panama was focused on increasing the per-customer revenue, primarily by displaying more relevant ads by using performance metrics. It was successful in achieving many of its goals, and went a long way towards improving the scalability, feature set, and performance of the advertising system.

Meanwhile the search group was hard at work improving Yahoo’s search capabilities, making the results more relevant and the experience better overall. They were also quite successful from a technology perspective, achieving good results.

However, Yahoo’s search market share did not increase. Given the smaller market share, many advertisers did not participate in the marketplace. Despite improved advertising technology advertising prices did not rise as they could have.

The search market share, by the way, was a large part of why Microsoft was interested in Yahoo’s advertising business: by combining Yahoo and Microsoft search market share more advertisers would be interested in participating.

Ultimately it made tremendous sense to combine Microsoft and Yahoo’s search market share and not to duplicate the significant infrastructure costs that are involved in running the search and advertising systems. Some form of a deal seemed inevitable.

Interestingly my boss’s boss from Yahoo, Qi Lu, is now the president of Microsoft’s online group. He has as deep a wealth of knowledge on this subject as anyone, so good things may be ahead.

MO:
You worked at 2 venture backed startups (Blue Titan Software and VelociGen).  Has Xpenser taken any investment?  Why or why not?  Could you tell us about your philosophy for building a company?

Parand:
Xpenser is entirely bootstrapped. We’ve been very fortunate in that we’ve been able to get to traction and revenue quickly and haven’t felt the need for outside investment.

I’ve raised significant venture capital in the past and am very familiar with both the effort involved in raising money and its effects on the company. I strongly prefer to prove a business model with as little investment as possible, and raise money primarily for growth and scaling.

Much of my past experience raising money was in very difficult times, in 2001 while the market was melting down. It’s flattering to have the situation reversed this time around and have venture funds pursue us instead of the other way around, but it’s more clear to me than ever that VC money is a means, not an end. We are fanatically focused on building the company and will take outside investment when the time is right.

MO:
You’ve got more code on your blog than any other CEO’s blog that I’ve read recently.  To me it seems you love programming.  Some founders (thinking of Steve Wozniak here) elect not to take a management position because they love being engineers. How do you find the transition from a more technical position to a more business oriented position in a company? What are your future plans at Xpenser if things go well?

Parand:
I’ve spent much of my time in positions where my day job doesn’t directly involve programming, but I’m a huge believer in being able to build things. I built most of the early Xpenser, and I want to be able to implement news ideas and features as they come. Hence I try to keep my technical skills sharp.

Having said that, my blog is mostly technical because I consciously tend not to blog about the business side of things. I find good business writing takes a lot of effort, and I’m lazy and slothful.

Long term I’m very interested in the startup world, so I hope to continue to be involved in starting, advising, investing in, or otherwise keeping a toe in early stage companies.