This $12 Billion Startup Nearly Imploded. When the Founders Revealed Their Wild Plan to Save It, Their Team Was Like, 'Whaaat?' Brex made a corporate credit card that was a runaway success. But when they started making a bunch of other stuff, things went south. So they came up with an ambitious plan to reverse course.

When a handful of Brex executives traveled to Santa Barbara for a leadership offsite in August 2021, instead of enjoying the breezy California beaches, they filed into a windowless, subterranean hotel meeting room. There, they holed up for three days — debating, soul-searching, and hair-pulling, their stress ricocheting off the four walls around them.

They were there to save the company.

Back in 2018, before Brex came along, founders often had a problem: Because many had no personal or business credit history, they were unable to get a corporate credit card — even if they'd just raised millions of dollars. Brex became a very Silicon Valley way of solving that problem: The company was founded by two Brazilian immigrants, one 19, the other 20, who had dropped out of Stanford and practically reinvented the very nature of how a startup credit card could work. Four months after debuting their breakthrough card, they raised over $100 million and achieved unicorn status — then grew to 1,200 employees in three years. "That's when everything started breaking," says cofounder Henrique Dubugras.

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As they settled at the table in the bowels of the hotel that August, the company's future hinged on one question: What is Brex? The startup had begun with a singular mission, and a simple story to tell. But as it grew, that had gotten complicated. Now it was a lot of things to a lot of people, many of whom were unhappy. Brex had lost the defining clarity that had made it once stand out so boldly.

To address that big question and get back to the heart of Brex's why, Dubugras and his cofounder Pedro Franceschi had a proposal. It seemed counterintuitive — and risky as hell. If it didn't work, all those employees could be left without jobs. But the way they saw it, a radical problem required radical change. "This was the company moment," says COO Michael Tannenbaum. "It was very scary."

Brex's beginnings go back to Brazil, where Dubugras and Franceschi were just two kids living in different parts of the country, debating coding programs with each other on Twitter. They became friends, then collaborators. When Franceschi was 16 and Dubugras was 17, they started their first serious business — a Stripe-like mobile system for small e-commerce fintech called Pagar.me, which grew to $1.5 million in gross merchandise value. "They created something that, technically, is probably one of the best pieces of software that our team has ever seen," says Andre Street, cofounder of a large European payments company called Teya and the Brazilian fintech Stone, which bought the company in 2016. The money the teenagers pocketed helped them go to Stanford, where they'd both been accepted.

In their first year at the university, however, Dubugras and Franceschi also got into Y Combinator for the winter 2017 batch. Virtual reality was "the next thing" at the time, and they pitched a VR startup that would turn your phone into a little desktop computer. But they quickly realized they knew too little about the technology to even begin — and looked around for another idea to take advantage of the program. That's when they spotted the problem: Their Y Combinator colleagues had raised a lot of money but couldn't get a corporate card for the life of them, because they didn't have the financial history the banks required. That, the friends decided, they could figure out.

They dropped out of Stanford to start Brex in 2017, wooed Michael Tannenbaum from the online bank SoFi to become CFO, and scored a second-story office on Market Street in San Francisco on the cheap. Although it had a great address for a wannabe financial company, the space was very startup. "There was always a lot of poop on the doorstep and usually a couple homeless people at the door who you had to go, 'excuse me,'" recalls Dubugras. Inside, they concocted a place to hold meetings — along with cobbling together their different cultures. Dubugras and Franceschi, for example, were used to taking nice, leisurely lunches, because in Brazil that's how you bond with coworkers. "Oh my God," says Tannenbaum, who often ate takeout at his desk. "It wasn't just the length of the lunches. They'd be like, 'Let's have sushi.' And I was like, 'I took a pay cut, obviously, to come here, and I can't even afford to eat with you guys!'"

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But they all worked fast, and they convinced a New York bank called Emigrant to back them. By June 2018, they were ready to launch their first card. To create it, they rebuilt the tech from the ground up and innovated an underwriting model based on cash balances (instead of FICO and financial history) that constantly evaluated a client's financial strength to adjust the credit limit. Clients had to pay it off at the end of each month, which at least saved them from paying interest. The application took minutes.

This meant that, for the first time, founders who raised at least $250,000 (now it's $100,000) could be eligible for a corporate card — and with 10 to 20 times higher credit limits than they could get elsewhere, along with no personal liability. "That was very different from how a traditional small-business credit card operates," says Nick Ewen, content director for The Points Guy, a travel site that evaluates credit cards. And Brex's card came with rewards and a spend management tool to incentivize its use, because the company made its money on transaction fees.

At first, the Brex team devoted every calorie of effort to making sure that card worked. "The degree of focus on one customer, early-stage startups, served us really well," Franceschi says. But in the fall of that same year, Brex raised $125 million in a Series C round, earning it unicorn status — and then, like any high-growth, venture-backed company, it started looking for ways to expand. The first steps were clear: "Our customers were telling us, 'Hey, I love your credit card, but I hate my bank account,'" says Dubugras. "These startup founders want products that are simple, easy to use, great design. So they were asking, 'Can you build a version of a bank account that is that?'" In October 2019, Brex answered yes: It launched business cash accounts.

What next? Dubugras and Franceschi wondered. They could try to sell more cards, but that alone couldn't fuel massive growth; the market of eligible startups was just too limited, so they took a wider view and saw three different paths. The first was to adapt their credit card and business accounts to e-commerce companies and specific industries. A second possibility was to go after the masses of hyperlocal businesses — mom-and-pop shops, restaurants, little retailers — all of which Brex classified as "small businesses." The third was to start building financial products for midsize companies — which is to say, companies a step or two larger than they were already serving.

"We decided to do all of these ideas at the same time," says Dubugras. "We just kind of went everywhere." It was the end of 2019. Brex had 400 employees.

Over the next year or so, this decision would transform Brex. It went from serving a narrow group of clients (startups) with specific products (credit cards and bank accounts) to producing a suite of fintech products for a very wide range of companies. And for a while, this worked. Every kind of business, from tiny retailers to midsize firms, was signing up for services, creating thousands of new customers per month. Brex expanded, too: It bought up talent as if it were Black Friday, and was on its way to 1,200 employees in 2021.

But that year, "our systems started going down," says Dubugras. "We started having more fraud and losing a lot of money because of that. Our original startups complained, 'The support is too slow. You don't care about us anymore. Where are all the new features that you promised?' And the small businesses were unsatisfied with their product too." As Brex tried to solve these problems, its team came to realize just how different these two kinds of businesses were — and it became clear that, as the company's product roadmaps diverged, many of its customers were left unhappy.

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Looking back, the founders saw that their ambitious but scattershot strategy had been a mistake. "We'd thought it was just the product innovation that made us so successful. But a big part of it was just the clarity of the original message, you know?" says Dubugras. "We had been the 'credit card for startups.' And had we not lost that message, and stayed in our lane, we would have grown more."

As he and Franceschi headed for Santa Barbara for their offsite, their minds were on how Brex could recapture its story — and its purpose.

When eight top executives gathered in that hotel, one might have thought the first order of business was logistical. In other words, how could Brex better execute to solve the problems with its existing products and build new ones that its customers wanted? But Dubugras and Franceschi knew that wouldn't address the brand's larger, existential crisis.

The way they saw it, Brex couldn't just revert to simply issuing credit cards. Investors and stakeholders expected hypergrowth! But there had to be a way to reclaim the brand's origin story about being a financial solution for startups — and still scale. And Dubugras and Franceschi had an idea: Brex would refocus on startups, by also growing with them. That meant building products not just for companies at launch, but for those that grow into midsize and even global companies too.

The kicker was this: Brex wouldn't wait for its startup customers to get big. It would immediately begin building products for large enterprise clients. And it had a specific one in its sights: the massive company known for getting customers food from their favorite restaurants, DoorDash. At the time, DoorDash was looking for a partner to build out its new spend management system — and although it was already piloting a solution with one of Brex's competitors, Dubugras and Franceschi bet there was still time to win that business. "We thought, if we can make something that supports the complexity of DoorDash but is simple enough so everyone in the company understands it, we will have something that works for the smaller guys too," says Dubugras. "And it will allow us to get really big clients today."

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Around the table at the offsite, this big idea landed with a thud. "A lot of the other leaders had decided that a natural thing to do was to go slightly upmarket and start to bring the features up a little bit," says Tannenbaum. "But Henrique and Pedro said, 'No, we're gonna go all the way up. We're gonna do DoorDash.' We were like, Whaaat?" Brex had simply never built anything with the complexities required for a client that size.

And yet, Dubugras and Franceschi weren't done dropping bombs. They also proposed that Brex no longer focus on its small business clients without venture funding — the local mom-and-pop shops it had started serving only a year before; nor would they accept new ones. Tens of thousands of these customers were now using Brex, but they represented only 2% of its revenue, didn't have a lot of growth potential, and were asking for new products like loans and lease financing that Brex didn't want to create.

Shifting away from these clients would be no small move. Brex had spent time and money acquiring them, and like the first idea, this one was hard to swallow at the executive retreat. Many of Brex's leaders wanted to stick with the company's current plan. "Some of the thinking," says Dubugras, "was like, 'We just haven't given it enough time. Maybe we can do it all. And we already promised all this to all these partners and investors.'" The room was stuffy with tension, yet the founders felt like they'd outlined the best path. "It was our job to consider all the practicalities," says Dubugras, "but also think about the longer term, and where is this company going to be and what are we going to do in the world. And pick our battle."

And so they all emerged into the fresh, salty air with a new vision. Going forward, Brex was the brand for fast-growing companies — helping them grow from startups into the next DoorDash. Now all it had to do was win the actual DoorDash business.

Here's how it went down at DoorDash.

Dubugras and Franceschi got a meeting, as they tell it. We know you're piloting a new expense management system with a competitor of ours, they said. Is their solution perfect for you?

The answer was no — DoorDash had an issue with it.

"We're like, 'Okay, just give us a month to come back with a plan of how we'll build something much better,'" says Dubugras. When Brex made the PowerPoint presentation, it got the green light to join the competition.

Now it was time to actually build a complicated, enterprise-level spend management system. To pull it off in short order, Tannenbaum switched roles from CFO to COO. He took responsibilities off the founders' plates, especially Franceschi's, so they could focus full bore on this project. Everyone chipped in.

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"DoorDash actually evaluated three suppliers who were up for the opportunity to service us," says Jerome Barley, DoorDash's head of global travel and expense, who left Capital One in part to help DoorDash migrate to a new spend system. The company's needs were quite elaborate; one of the many things it wanted was a feature to control budgets in hyperspecific ways. "Brex was the only one that delivered. And their speed to market from a technical perspective was really similar to how we operate," he says. "Brex reminded us of DoorDash."

Only eight months after the offsite, on April 13, 2022, Brex announced its new system — with DoorDash as a client.

The platform, called Empower, shows a finance leader where every dollar is going in real time — down to the individual employee. "So it really gives us the opportunity to drive deeper insight into spend," says Barley, who still meets at least twice a week with Brex's team for routine issues and to discuss new and upcoming features. For example, he wanted one specifically to help DoorDash's sales teams, who constantly travel from merchant to merchant. The original mileage tool required a user to enter every stop they made. That was time-consuming and tedious. The new one will allow for multiple points in a day without logging all the addresses. "For our sales folks," says Barley, "this will be huge."

But the hard work at Brex had only begun. Once it was officially serving enterprise clients, it was time to set other things in motion — including the new vision for Brex.

On June 17, 2022, the company executed that other part of its strategy — shifting away from small and local businesses. Franceschi spelled it out in a 13-part tweet that began: "Yesterday we made the difficult decision to stop serving traditional small businesses at @brexHQ. Brex remains deeply committed to serving startups, so let me explain how we got to this (painful) decision, and why it allows us to serve startups even better." He outlined the company's need to focus on better products for its core users, and said the impacted small businesses would have two months to migrate off Brex.

This was a heavy announcement. It felt like kicking guests out of your home, after first inviting them to stay and making friends. Also, 11% of Brex's team was devoted to serving these clients — so this meant laying off 136 people. On a human level, Dubugras says, "it was terrible and horrible," but financially, he was convinced it was required for the company to move forward. The backlash was fast and brutal. Upset customers took to Twitter, writing that Brex is "dumping small businesses" and "torpedo[ing] your company's prospects." News stories described the company as abandoning small businesses in favor of bigger-paying clients. And there was a lot of confusion about who, exactly, Brex would stop working with. What was the line between the "small businesses" Brex was moving away from, and the "startups" it still embraced?

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"That was the worst day of my working life," says Dubugras. "It's okay when you're getting a bad article about something that happens to everyone. But this was, like, our fuck-up." Why? For all sorts of reasons, Brex should have never started serving those small companies in the first place, and it should have had a smoother way to let them go.

For a while, Brex was in damage-control mode. Then it adjusted. And on its site, Brex explained carefully — without using the term "small businesses" at all — why it had decided to focus on startups and scaled companies. Then it turned its attention to the future.

After last year's drama, Brex is on a steadier course. It is valued at $12.3 billion and has 1,100 employees — and although there's increasing competition, it continues to innovate. Recently it rolled out a robust travel solution and is currently developing advanced AI tools to make smarter spending decisions with technology from OpenAI, the creators of ChatGPT. Brex is still in hypergrowth, having raised $1.5 billion. And while not yet profitable, revenue is in the hundreds of millions, says Dubugras, declining to be more specific.

The majority of its new business is now coming from midmarket enterprises, who sign up for Empower, the product Brex originally cooked up for DoorDash. New clients look like SeatGeek, which has around 1,000 employees and chose Brex after interviewing 10 vendors for the job. Teddy Collins, SeatGeek's vice president of corporate finance, was looking for both the best enterprise-grade software and a killer modern user experience. "Brex stood out to bring both of those worlds together," he says. "Now 95% of our expenses are automatically categorized, and employees are able to complete their expense reports on Slack. Their engagement and satisfaction scores have been really good from the launch."

As Brex grows its enterprise side, Dubugras and Franceschi are always looking to signal that Brex is built for startups. For example, when Silicon Valley Bank collapsed in March, it stepped in to offer emergency bridge loans to impacted startups, without trying to make any money off them. The offer was ultimately not necessary; the FDIC decided to help the startups instead. But as a result, within the first week, Brex netted 4,000 new clients and about $2 billion in deposits.

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Brex is also still working on its brand messaging. The founders were fast to pivot the company's product roadmap, but are finding that redefining the brand publicly takes time. Today the homepage calls out: "Control all your spend in one unified platform," and goes on to promise: "Automate compliance, close the books faster, and keep everyone on budget in real time, worldwide." That language is all geared toward enterprises with no immediate mention of startups. Franceschi agrees: "These are startups that evolve, right? There's a lot of work we need to do on clarifying that message."

Dubugras considers this. "I think it can even be more simple," he says, looking off as if into the future. "But our messaging is definitely better than we had before. I would say we're getting there."