In Palo Alto (CA), we meet founder and CEO of Bill.com, René Lacerte. He shares his story how Bill.com was founded and how the current business model works, as well as what the current plans for near future, and some advice for young entrepreneurs.

The transcript of the interview is below.

INTRODUCTION

Martin: Hi, today we are in the Bill.com office in Palo Alto with Rene. René, who are you and what do you do?

René: Hi, well my name’s René Lacerte, I’m the founder and CEO of Bill.com. Prior this I started a company called PayCycle, which did online payroll for small businesses. We grew that to about 100.000 businesses and sold that to Intuit. I’m a fourth generation entrepreneur, learned from dad and granddad that cash is king, you got to stretch out the payables and pull the receivables. And the way I came up with Bill.com, which I haven’t told you yet what we do, is that I was trying to do exactly what dad and grand dad taught me when I was running PayCycle, and there were no tools to help me do it, so we help businesses automate their payables, automate their receivables, and ultimately we give them freedom, so they can actually focus on the real things that are important for their business. So, by automating the payables and receivables, and all the workflow around it, all the payments and all the transactions, syncing that with all the applications that they work with, it removes the tremendous burden from them and really helps them grow their business. So, we hear that all the time.

Martin: What did your dad teach you?

René: Dad taught me so many things. At the core of dad was, he just, he never gave up. My dad just, he was born with a disability, he had four fingers on his left hand and two on his right, and he, nobody teach him to play the piano, so he thought himself. And there are all sorts of examples like that were, he was a fabulous musician, he was playing trumpet when he was a kid, and he moved to piano. And one year, in 1977, Chuck Mangione came out with a song called “Feels so good” and he heard it on the radio, and he just went out, and he brought over it, he was playing it the next day, and the sound was just as good as Chuck. But, if you apply that personal stuff, that’s the way he was at work. He just never gave up, like he was persistent. If he was passionate about something, if he really believed in it, he was just persistent and just focused and he just delivered, he just really focused at. When you care about something it is worth fighting for. And you don’t listen to the detractors, you just kind of focus on what you know you’re capable of and you just do it. So, that’s probably the most important lesson that I’ve learned. I’ve learned lots of tactile things about how important it is to manage your cash flow and how important it is to have, obviously, good benefits for your employees. But all that stuff, really, at the core, building a product and starting a company, you just got to persevere and actually focus and get it done.

Martin: Great. Remembers me of the book “Poor dad, rich dad”. How did you come up of idea of Bill.com?

René: With Bill.com, I was running the day-to-day at PayCycle, I had been a product manager at Intuit where it actually worked on consumer bill payment for Intuit, and I was finding that all the paperwork that was coming, we got a check run every Friday, I just couldn’t manage it. It was…, I was unhappy, I was angry, I was kind of frustrated that all this paper stuff came to my desk and yet, I didn’t have all the answers I needed to make decisions. So, when you’re making payment decision, this goes back to what dad and grand dad thought, which was to stretch out the payables, and to pull on receivables, you need information, you need context, you need a lot of content to actually make a decision. What does the contract say, when did I pay them last, what do my employees say, does my marketing head believe this is a good expense or not? Maybe I want to ask them why they did this, because I might want to learn what’s going on in the business. All those questions require collaboration. And so, I just was kind of fixating on the fact that none of the tools that I had either built or looked at competitively add in to it, allowed me to actually do what I needed to do. It didn’t allow me to collaborate with the people, which would be the employees, the customers, the vendors, the accountants. It didn’t allow me to collaborate with the documents. Everything from a source document all the way up to the clear check image. It didn’t allow me to collaborate with my accounting system or my banking system, so I can have secure disaster-proof, so to speak, backup office capabilities. I didn’t have any of that functionality out there, so I started thinking about it, it’s like “You know, this cloud thing is pretty collaborative. I bet you, I can kind of think about, how I can actually make the transaction go from payables to receivables and back, without having to do any data entry on either side”. So that’s kind of how I started thinking about it, and realize there was an opportunity to give people the right access at the right time with the right information using the cloud, which will allow for all that mundane paperwork that people have, will allow that to disappear.

Martin: And how did you make your first product version reality? Did you hire some kind of developers helping you for this, did you raise money upfront or finally after you’ve had the prototype, how did it work?

René: I was fortunate that we had, because of the success of PayCycle, I was able to raise money fairly easily, from existing investors in PayCycle, they just wanted to put some money in. But, and I would recommend this, I did this at PayCycle, I did it at Bill.com, and I’ll do that in the next startup. You can do the prototype fairly easily, and no technology, in fact. Our original prototype was, I would walk down to the businesses that we signed up, I would actually take their bills for them, I would scan them, I would actually than attach that to email, en route for other people to approve. I would then take care of printing the checks or moving the money electronically, I would do all that stuff manually so that we could learn what we needed to build out in the system with the engineers. So, it didn’t actually take much money to get an alpha version out. But it did take, it does take time to build payment company. That’s not easy work, to manage and build payment companies.

Martin: So it was more hard to really understand where the pain point is, but not developing the first prototype and solution?

René: Well, the pain point, I would say that, what was hard was actually to learn how to scale the solution. Understanding the pain point was actually something I knew, just from running a business at PayCycle, and then getting to the prototype was fairly easy. And then we knew what features we needed to build, to actually enable that pain point to go away. And so, then it was “Ok, how do you build a scalable system that enables those features?” And that’s been hard, that’s what we’ve been doing for seven years.

BUSINESS MODEL OF BILL.COM

Martin: René, let’s talk about the business model. How does the business model work right now, can you walk us through, from a customer’s perspective?

René: The customers, we have multiple types of products. We have accounts payable automation tool, we have an accounts receivable automation tool. So customers come to us for one or either both of those, and when they come in there is a software subscription model, where they need to pay us for the, basically a license per user and it depends on the license fee, it depends on the complexity of the business. So, the more complex the business is, the more sophisticated their accounting software is, the more sophisticated their needs are, the more expensive the product is. But that price ranges anywhere from $29 a month all the way up to, I think $79 a month. And then, we have transaction fees. So, every time we enable a customer to fulfill a transaction, whether it’s paying their vender or collecting their receivable, we charge a $1.49 for any paper transactions and $.49 for any electronic transactions. There’s other fees, but those are the dominant transaction fees that we have and what we find is that customers quickly get on the system and then they’re able to really save a ton of money. Our customers tell us they save anywhere from 50 to 75% of the time and they get paid 2-3 times faster. So, the ROI is actually very, very high and they see that, and they get that, so the building of the business model seems to be one of the simpler problems for us to solve.

Martin: The old payment process of paying your suppliers, from my understanding works like this, that in a small company, the accounting department collects all the, let’s say, the contracts that are that you made to list the suppliers, so you know when to pay them, what are the DPOs and payment dates. And then, the managing director also signs them, “Ok, this one, please pay it” or “This one, maybe we should negotiate the price”, etc. This is what I would call the old model. How does your model work and improve this kind of process?

René: The model that we have is, I guess at the core of any business transaction is, it’s kind of obvious, but collaboration. Businesses collaborate with the people, the systems and the documents, so, what you just said, there’s actually fair bit of collaboration there. What we do is we digitize everything, so that collaboration becomes instantaneous. So, I can collaborate with my phone, I can actually look at the bill and see the exact same digital copy that you’re looking at, and at the same time given. And as soon as you approve it, it can then go to me to approve, if you have a question about it saying “Hey, René, I’m not really sure that this is exactly what we said” than I can make a note and reply back why it is or why it changed, whatever. So, that instant ability of work flow, built into all the transactions, and also providing auto trail, so you can see who has looked at something and if they’ve approved it and if it’s been initiated for payment, and all that good stuff. That type of systemic integration makes for a lot simpler collaboration tool, with all the people who you work with, as well as all the documents. When I…, the reason I started the company is at PayCycle we’ve had one big filing cabinet with all the vendor and customer records in it, so two people are the key, the general counselor and myself. So, I would go back to, I would be paying the bill or looking for an invoice to collect on, I get back to the cabinet and I open up the filing cabinet and I go and put out the file that should have the contract in it I’m looking for, open it up and it’d be empty. Because somebody else needed to look at it and haven’t replaced it. And now we have to run around the office and say “Where is that copy of contract?” Nobody had it, right? So, the document should be centralized and it should be tied to the transactional staff because, from the financial perspective, the managing director, the CEO, the owner of the business, the controller or CFO, whoever it is who’s signing the check, they need access to that data quickly, and that’s what we do.

Martin: Who’s digitizing the contracts then? Is it the company, your client, or is it you that are supporting them, are you digitizing this content?

René: It’s mostly them. The reason I say mostly is that we give our customers the ability to fax a document in. So, that creates a digital copy. So, every customer gets their own fax number, every customer gets their own email address. So venders or customers, anybody can just email a document in to that particular address, anybody can fax a document into that fax number. And in addition, you can take a picture with the phone and send it in that way, or upload it from a file on your machine. So, all the documents come in that way, and then, once they’re in, then we start the work flow, we do the data entry if you ask us to, we start the payment processing, we have all the security and all the trails that I talked about.

Martin: How’s the inter-connection between Bill.com and typical accounting systems, like SAP and Oracle? Is there some kind of automation link between them?

René: The accounting systems that we primarily work with would be Intuit, Quickbooks, Quickbooks Align, Intacct, NetSuite, Xero, we do have customers using us with Mas 90, Great Plains. I don’t think we have anybody with Oracle or SAP, it does tend to be much, much larger companies, kind of Fortune 2000, and in the United States there are 6 million businesses with employees, 6 million employers, and that kind of tends to be our focus. And they tend to use these first five that I’ve mentioned. So, our believe is that the accounting software is tremendous tool that gives you the data and the ledger and the reporting that you need about how to look at and analyze your business. But when it comes to actually understanding your payables and receivables, they don’t have the process work flow that we have. So, we are a tool that works side by side with the accounting system. And so we have partnerships and integrations with each of those applications, and our customers typically will sync the data from the accounting software into Bill.com, in the initial day or whatever, and they will take over all the list items to customers, to vendors, chartered accounts, the expense categories, all that stuff will come over. And then from there, once they put the documents in, they can categorize it in Bill.com and then we just sync back and forth. If they add a vendor it goes over to Quickbooks, if they add a customer it goes over… All that stuff just automatically gets integrated and synced in a seamless fashion, so the customer doesn’t have to worry about their books being accurate. So, accountancy, here’s one of the things accountancy loves, is that they can actually have their clients involved in Bill.com, but not necessarily involved in the accounting software, which is where they can kind of make mistakes.

Martin: René, your domain is, I think, too good to be true. How did you get that?

René: Little bit lucky. The CTO, Eric, had a friend Marc Benioff, from Salesforce, and Mark Benioff owned the url. And so, Mark had stayed connected to Eric and, after about year of working here had kind of asked Eric a little bit more about what we are doing. When we heard what we were doing he was like “You know, I’ve got a url that might be appropriate”. And so we talked, and we talked about the business and, as a friend he did us a favor and sold it to us. It was good.

CORPORATE STRATEGY

Martin: Ok, let’s talk about the corporate strategy. What do you think is the competitive advantage of Bill.com over other software as a service companies that might also stream the accounting process, or payables and receivables process?

René: I think the core advantage that we have, the primary challenge that there is in building what we’ve done, is that the reason, the name was a good save way, so the reason I ended up buying Bill.com. Originally the company was Cashview, which in some ways is more descriptive about what we actually do, but Bill.com is too good to pass up, because Bill.com represents two sides of the same point: the payables and the receivables process, and that’s like, if you think about a quarter, there’s head, there’s tails, but it’s a quarter. So, we’re two sides of the same coin, it’s the transaction that businesses use to communicate and transact across. That transaction, if you really want to make it electronic, if you really want to create the collaboration for asset, you need to both do the payables part, you need to do the receivables part, you need to create collaborative tools for customers and vendors, you need to create the payments that need to happen back and forth, you need to sync with either type off the accounting system, if you’re on Quickbooks and I’m on Intacct, if you’re on NetSuite and I’m on Xero, all that stuff just needs to kind of go together, and so at our core, we’ve always had a data model that represents that it is built, the transaction is either payable or receivable, but it’s actually both at the same time. That’s one of the bigger barriers to entry, the other barrier to entry is money moving, when one of the few companies actually does the money moving and actually processes the transactions and manages the fraud risk and the credit risk and all the things that come with money movement. And that is really, really hard stuff to do and, in this particularly regulatory environment. Since 2008, in United States it’s gotten a lot harder to do those activities and so, we have a lot more cost and expense that we are putting into the system, kind of managing working with others, and that’s not something that I think most startups should be doing, because it’s actually fairly expensive and fairly risky.

Martin: And did you think of moving towards supplier, management and towards trade receivables management, or debtor managers, in terms of selecting the right debtors or suppliers, managing them, building this kind of database?

René: We believe that the network that we have, that connects customers and vendors together, the payables-receivables connection, ultimately does create supplier network, if you will. But it’s going to be different from the Ariba’s or… It’s going to be different from that, because of that we think that most businesses, you can look in the US, right, in the US, the top 4.000 companies in US create 70% of the consumer bills. So, consumers only have to talk to 4.000 companies to be able to get everything electronic. It’s much simpler from when you think about the 29 million businesses that the US has. So, we believe that the network that needs to, that will solve the problem, is going to be one that creates some transparency, no matter your size. And so I think that’s, it’s just a different way of approaching the problem. So, we haven’t gone after, go get the top 4.000 billers, and, which is, Ariba’s kind of got the top 1.000, and then it gotten out through all their network, it’s a great strategy, but I think ours is to say “Let’s make sure this works for anybody and anyone at any time”.

MARKET DEVELOPMENT

Martin: Let’s talk about market development. In the payment industry, the SaaS, and accounting industry. So, what kind of interest can you identify specifically, related to the accounting department?

René: I think one of the things that I’m seeing, there’s kind of three big trends in general.

• There is big data.
• There is social or collaboration is what I think it translates into business world, and then
• There’s electronic payments.

And, obviously, we play in all of those. I’ve talked about those words that… What’s interesting is this, when we first, when I did PayCycle, when it was internet payroll solution, we did not think of it as a cloud solution, we did not call it the SaaS solution, we did not think of it as the benefits that that environment really provided from a customer perspective. There were benefits for us from a company building owner: faster development times, better ability to kind of fix bugs. And now, when we think about the cloud, it is kind of sharing this phrase I use, it’s sharing the right data with the right person at the right time. And allowing people to collaborate across all of that, and that’s kind of a trend that we’re seeing, is that businesses want that, the CEO or the owner wants to be able to pay a bill in a taxi cab in New York City, or a woman who owns the business wants to be able to pay a bill while she’s picking up the kids, or the dad wants to be able to pay the bill or invoice a customer while he’s at the soccer game. Whatever the stereotypical role that you come up with, they want to be able to do this activity from anywhere, and that activity is very different from when you think about the finances – of what did I spend on this, this and that. And so, it’s kind of, it’s the instant real-time nature that business demands, all business owners are being placed on a day, which is business never stops, you’re always connected. It is that phrase that I’ve heard many times in the Valley, or maybe not many but I use it many times, which is “the news is looser, but the leash is longer”. That’s what the internet has done for us. We’re always connected. You’ve always got that leash. But I got a lot bigger rope around my neck, so I’m not going to hang myself, but I’m always connected. And so, I think that enablement of technology is driving what businesses expect from their financial applications. They want that freedom and flexibility, because everything else they do to run their business can be done from anywhere, so I think that is driving a big need in the accounting space, in the finance space, and so you can’t make a decision about paying a bill unless you got all the filing cabinets at your fingertips. There is a, one of my first demos I did for the demo conference in 2007, I got up on stage and had a tool belt around my waist. And the tool belt, on the tool belt I had calibers with paper hanging off, like a whole rim of paper all the way around my waist, and they were all bills and invoices. And the comment I made was like “If you wanted to have all the paper and the invoices, to be able to pay your bills anywhere, this is what you would have to do”. Nobody’s going to do this, right? You want to be able to do it on the phone.

Martin: Should look very funny.

René: Yes. It was a good video, it was fun.

ADVICE TO ENTREPRENEURS FROM RENÉ LACERTE

Martin: René, your dad thought us so much about how to start a company and how to become successful entrepreneur. What do you teach your two boys so they become entrepreneurs if they want?

René: It’s a great question. I think one of the things that we failed at…, and actually all these studies in the US about this, which is dinner table conversations are probably the most important thing for successful child, to become a successful adult. And so, when you come home, what do you talk about at the dinner table? Everybody talks about their day. So, I share very openly with the kids all the good stuff and all the bad stuff about running a company, and I explain it so they understand it. So, if I’m having a challenge hiring somebody, I talk about why this role is important, what would this person do for the company, what I’m looking for, how I evaluate the person, where’ve they been, all that type of stuff, we kind of get into that so they can potentially learn about the people side of business. If I’m evaluating how to organize the company, I’ll go through the organizational structure of the company. If I’m evaluating the product feature, we’ll talk about “Hey, I got this new idea, this is what I’m thinking about…” and then I’ll ask questions,.. So, I think, and my dad did this with me, this is a really important thing, where no matter what you it, it might be why you see actors’ kids often times become actors, and businessmen’s kids often times become businessmen. That’s kind of an interesting way to kind of sugar that learning, so there’s no one thing, other than as I’m learning, I’m sharing that with the kids. So they get to learn a little bit of something, and that dinner table MBA, as I call it, I think is one of the more valuable, educational experiences that our kids can have.

Martin: I understood this kind of educational practice that you are doing, and for some people who are not privileged to have an entrepreneur as their daddy, what kind of advice would you give them for starting a company?

René: Well, the first thing is that it’s always harder than you thought or think. It’s always harder, and so just back to the first question you asked me, which is you got to pursue it. If you believe in what you’re doing, you have to keep doing it, you can’t let somebody else tell you: “No, it’s not right.”

That said, you should always validate, so if you think about the examples I gave, both at PayCycle and here, at PayCycle I did a payroll by hand, I filled out forms by hand, but for the customers, their experience was, they got a complete internet experience. They can email me the hours, I would then create the paychecks and I would deliver to their door. Because I didn’t have the ability to just send it through email at that point. But they got that experience. And when I could see “A-ha, that solved the pain point”, then I knew it was worth investing. So, there are ways to kind of prototype, start out, make sure that your customers value the pain points that you’re solving before you invest, and I would recommend that.

The other that I always tell people is really, you cannot underestimate the value of the network that you have. Do not be afraid to tap into it and ask, people can always say no. And, kind of an add-on to that is focus on developing board of advisors or board of directors or something, that you have to be accountable for. Everybody always think, it’s interesting, but always think, you know, being your own business, and less, being your own boss must be great. I am not my own boss. I work for the people above me, I work for people below me. I’m the guy in the middle that has people all around me that I need to work with, and they’re all telling me what to do. And now, I get to set the course, but I’m listening to all of them and I’m trying to make sure they’re all satisfied and, if you don’t have that accountability, then it’s actually very easy to say “Well, you know, I said I was going to get this product research done by next month”. Three months go by and you haven’t done it. But if you have a board meeting, and you have a board meeting in six weeks, where you have to report on the product research, guess what? You’ll get the product research done by six weeks amount. So, I would recommend that, there’s probably more ideas, but those three tips seem like the ones that I focus most when I tell other entrepreneurs.

Martin: René, thank you very much for your time.

René: Thank you.

Martin: And the next time you want to start a company or, even better, want your kids to start a company, talk to your kids and educate them on a dinner table. Thank you very much.