20VC: Why Salesforce, SAP and Concur Will Die | Scaling 3x and Raising at a $9.2BN Valuation in COVID | How OpenAI is Changing the Travel Industry Forever | Never Before Revealed Margins on Travel and Expense Management with Ariel Cohen, Co-Founder & CEO

Ariel Cohen is the Co-Founder and CEO @ Navan (formerly TripActions), the #1 travel management super-app used by over 8,000 companies. Ariel has raised over $2BN for Navan from some of the best including a16z, Zeev Ventures, Lightspeed, Greenoaks, and Elad Gil. Prior to TripActions, Ariel co-founded streamOnce, a business multimedia integration platform that was successfully acquired by Jive Software, where Ariel had previously served in a senior position following his time at Hewlett-Packard. In Today's Episode with Ariel Cohen We Discuss: 1.) Why Education is Outdated and Wisdom to People Entering the Working World: Why did Ariel not really attend many classes when he was a student? What would be his biggest advice to young people leaving school today? Where would he focus? Why does Ariel believe that traditional education is more outdated now than ever before? 2.) Why SAP and Salesforce Will Die: Why does Ariel believe that SAP and Salesforce have not innovated for a decade? Why does Ariel believe that Slack is a disaster inside of Salesforce? What are the single biggest advantages that startups have over these large incumbents? What can startups do to retain innovation and speed as they scale into becoming an incumbent? Why are the best founders willing to kill their own projects? 3.) Growing a Business 3x and Raising at a $9.2BN Valuation in COVID: How did Ariel grow the business 3x with all travel being banned? What were the tactics to blitz scaling during COVID? How did Ariel approach his investors for a new round in the middle of COVID? How did he get such a high price in the midst of a global pandemic? What is the bull case for how Navan can be a $40BN company? 4.) Margins Matter: Gaining Leverage Through Additional Margin: With Navan's 80% margin, they have 30% higher margins than other competitors, how do they have such high margins? With the additional 30%, how does Ariel plan to scale Navan's reach and use the margin to do so? How does OpenAI play a role in helping Navan increase its margin even further?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  In five years from now, nobody is going to use Conqueror and Amex. Nobody is going to use Salesforce. These companies have lost their way around innovation. They don't know anymore how to innovate. They cannot attract the people that know how to innovate. These companies, actually, I would argue, will just die. That's what will happen because innovation happens. These companies lost their way around innovation and they will just die because they are not relevant.

• 0:24Harry Stebbings?

  This is 20VC, the memo where we chart the success story of one of the breakout companies of the last decade. And today we have a special guest. Just yesterday, they announced their rebrand from TripAsians to Navan. And wow, what a show this was. I'm thrilled to welcome Ariel Cohen, co-founder and CEO at Navan, formerly TripActions. The number one travel management super app used by over 8,000 companies. Ariel's raised over $2 billion for Navan from some of the best, including Andreessen, Z Ventures, Lightspeed, Greenoaks and Elan Gill. And prior to TripActions, Ariel co-founded Stream Ones, which was successfully acquired by Jive Software. But before we dive into the episode today, if you lead a team and have ever had to buy software or services,

• 1:05Harry Stebbings?

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• 1:49Harry Stebbings?

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• 2:32Harry Stebbings?

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• 2:58Speaker 00

  You have now arrived at your destination.

• 3:01Harry Stebbings?

  Ariel, I am so excited for this. It's been quite a few years now, so first, thank you so much for joining me again.

• 3:07Speaker 00

  Thank you. I'm so happy to be here again. And I'm always listening to you, interviewing really smart people. It's really interesting to hear you and also listen to your Jeff Jordan one, and it was really fascinating.

• 3:18Harry Stebbings?

  That's very, very kind. I'll pay you later. But we were talking beforehand, and you just, this is off-schedule. I know the first question being off-schedule is unusual, but fuck it. You said to me, "School and university, you don't really go to that many lectures or lessons." I was just intrigued, like, why?

• 3:35Speaker 00

  The type of person that I am, I can learn stuff by myself, but I can only learn stuff that really interests me. The reality is that I think that most of the things that you learn at school and universities, they're just not interesting. There are things that, for example, some case studies that you're gonna go through, and I could be so much fascinated by that, but then I could go all in. For me, the way that I can learn, it's only if it interests me. If it's not, I cannot really study. And that was my school life. I was actually an extremely average student. I could either have, like, really, really, really good straight day, but on the really good side of it, or I would totally fail. And it's really based on the way that kind of maybe my brain works.

• 4:18Speaker 00

  If it gets my interest, I would geek out and learn everything about it. If it doesn't, you cannot get me even starting to get interested.

• 4:26Harry Stebbings?

  Does that impact how you advise your children when it comes to how they pick up and learn new things?

• 4:32Speaker 00

  100%. So I have three kids, two of them, they are twins, a boy and a girl, they are 15. So they are starting to think, what would they do next and so on. One of the things that I've told them, hey, do whatever you want to. But my advice to you, don't even at age 18 have this pressure to go to college. Because I don't think that what you really want to do with your life at age 18. And I know that a lot of people are doing this, keep here. And I like travelling, a lot of my conclusions are happening while I'm travelling. So my advice to them, what you're gonna do with your life and school and all of these things, it will get figured out. But first, take the time to really learn, to really understand what to. And I think that in any case, we are in such an interesting time in our lives with the development.

• 5:15Speaker 00

  And I know that we're gonna talk about it, but with the developments of machine learning and AI. So I'm not even sure that the things that we are learning are not obsolete. My advice to them, don't take this too seriously.

• 5:26Harry Stebbings?

  So I think secretly, I've always wanted to be a psychologist. But we mentioned children there and psychologists always give everything to your childhood and how it impacted you. I do think everyone is a function of their histories. What do you think you're running from, Ariel?

• 5:39Speaker 00

  If you take a step back, I think the one that comes in mind always for me is Salesforce and SAP, which are not innovating. I think the last time that SAP innovated something was in the 90s. And the last time that Salesforce innovated was in the beginning of 2000. And I'm looking at this and besides the fact that I think it's embarrassing that companies that are located in the middle of Silicon Valley have not been innovating for years, it's also what I'm running from. The one thing that scares me is that one day, Navan will be that kind of a company that their only way that you innovate is through M and A. And through using your market dynamics and your power in the market to basically sell. And this really scares me.

• 6:18Harry Stebbings?

  Just jumping on that, I'm too interested. How do you retain innovation, speed, agility with scale? How many people are a trip up Navan now?

• 6:26Speaker 00

  We have 3,000.

• 6:27Harry Stebbings?

  How do you retain that innovation and agility?

• 6:30Speaker 00

  I think it's about decisions. And Elon and I had looked at this, Elon is my co-founder, and this was like five years ago. And we said if we would have started trip actions again, we wouldn't do it like that. Out of this came everything that we did around payments and expense management. Two years ago, we looked at this again and we said today with machine learning, you can achieve much better service by servicing people fast. But you cancel your flight, are you going to get your tickets back or not? It's very hard to automate it, but we've managed to automate it with a lot of use of smartness inside. We are calling it, we have an internal body, we call it Catty's IQ. And this is this thing that keeps learning. So again, we killed what we had and recreated it.

• 7:13Speaker 00

  So I think you keep this innovation if you have the courage, first of all, to look at the mirror and come and say, okay, what we had done up until now was relevant back then with our understanding and the technology back then, but maybe it's time to kill it and change it. And we've been doing it times and again here. Actually, my co-founder right now is running two projects that are making basically a lot of what we've done to date obsolete. And I think that's how you maintain innovation.

• 7:38Harry Stebbings?

  I'm writing, when you get to my age, you forget things. And so you write on your hand and then you will remember.

• 7:44Speaker 00

  I think I'm older than you, I'm not sure, but I think I'm way older than you, so maybe you know.

• 7:48Harry Stebbings?

  But you're a silver fox, my friend. My first question was, you mentioned some of the additional products you created over time. How do you determine as a leader and strategist between an additional product that you should chase and should do versus a distraction? It's so easy to be distracted. What's the difference between a product you should do and a distraction?

• 8:06Speaker 00

  I think people by default are afraid of change and they will do whatever it takes to not make a change, even here in Silicon Valley, inside the tech companies. And even last night at 8:00 PM, there was a designer that actually showed me yesterday a design of for the new unified app. We are actually releasing as part of the Novant rebranding. We are consolidating all of our technologies to one super app. We all been been using it here in trip actions or inside Novant. Then this designer showed me a really interesting design, something much better. And we are two weeks before the release. So what do you do? And I told the team, hey, I cannot unsee it. This design now, I cannot add fit, that should be our design.

• 8:50Speaker 00

  And this is scary, changing everything in the last minute is scary. But then, here is the thing, we've agreed it with the team that will do this change, but then for quite some time will not do more design changes, because now I want to focus on something else, other innovation in a in a van, other two big projects that we have here. So this is scary, because I've said, hey, it's all about design, it's all about this thing. But now actually I'm gonna deprioritize it in three weeks from now and do something else. And I think having the ability to make these decisions and bring the team with you and not having this fear that the team will object to this. I think this is in the heart of companies that are innovating, but it's also in the heart of companies that are not innovating. You're sometimes too much afraid as a company from the change.

• 9:35Harry Stebbings?

  How do you get over being afraid? How do you bring people with you as well? Also, when you're deprioritizing something, you don't want those that were prioritized on it to feel like the unloved child. How do you get over that?

• 9:47Speaker 00

  First of all, you never give up. And I'll give you an interesting anecdote. Covid started and we lost all of our revenue, but decided to continue to be in the market and sell, do M and A, raise money. But the most important thing, innovate, continue to innovate. Back then, I've decided that the innovation would not necessarily be just about travel, but we're actually gonna shift resources. We're gonna shift designers, product managers, developers from the travel side to the expense management side. That was a decision that actually the employees back then didn't like, from a lot of various reasons. Again, we've talked about being afraid of change. So in that process, I actually lost most of my product team, okay?

• 10:30Speaker 00

  And two years afterwards, I started to look at the data that showed how much both are picking up, travel and expense management. I remember that I told my co-founder, sometimes you need to do these decisions, even if it means that you're gonna lose the team in the process, because that was the right decision. So sometimes you can bring people along with you. In most of the cases, that's what I do, and you can do that. But you cannot be afraid of the consequence. Of the implications of doing what you believe intuitively, deep inside, that is the right thing for the company.

• 11:03Harry Stebbings?

  Speaking of doing what you believe in the right thing for the company, you also mentioned killing projects. How do you determine which projects to kill?

• 11:10Speaker 00

  Firstly, you know, I think that I will bring it back to maybe the lean startups kind of concept. I think what I really like in this concept is that you start something with hypotheses and you start to measure it. And your entire purpose is not to develop the product, but to actually examine your hypotheses. If you're strict about it, you cannot lie to yourself. You have an hypothesis, you're saying, hey, this is what I think that this product will do, or this feature will do, or this project will do. And this is how we think that the market will accept it. Then you put the right metrics and measurements in place and you keep asking the question, is it happening or not? Is it happening or not? And you can do some pivots. So it doesn't mean that your first implementation will be the right one.

• 11:52Speaker 00

  But if you operate like that, it's not that hard to bring the team into a room and say, we had these hypotheses. It doesn't work. Let's move on. Let's do something else. I think if you do that, very capable of.

• 12:03Harry Stebbings?

  How long do you give it? Because there's that kind of, you can't do it too quickly, you need enough data. But then too many founders are afraid to kill it and give it way too long.

• 12:11Speaker 00

  Based on how important it is for your strategy. If it is fundamental for your strategy, you define your strategy as a company. And you're saying this thing, I'll give you an example. We give rewards for employees to save company money. So you come to our product, you try to book a hotel, it's in policy. Then we are telling you, but if you'll book something that is lower than the policy, we're going to give you rewards. It's part of the Navan rewards program. We are rewarding you to use us. We're rewarding you to save company money. You're also getting your Marriott loyalty points. So you get it all. You, I'm calling it, you triple dip. So with your credit card, if even you dip four times, so you're happy as an employee.

• 12:54Speaker 00

  But when we started the company, we had the same idea. Nobody would click on the stuff that will give you the rewards and nobody would actually redeem these rewards. Now the question is, are you pivoting or are you doubling? Down this feature today feature back then it was the entire company was so important for our strategy that even though the hypothesis was incorrect, nobody was using it, we're measuring it. We've decided to double down. We've decided to continue to pivot, to change the UI, to change the way that we are describing it, to change the algorithm and to continue to double down. And eventually, everybody started to use it. So sometimes it is so important to what you do, to your set of belief that you double down. And eventually, either you run out of cash or you pivot or you're being successful.

• 13:38Speaker 00

  And sometimes it's more clear that you did it, you tried it, but it's okay to give it up.

• 13:43Harry Stebbings?

  Ariel, you mentioned the time when COVID happened and your revenues went to zero. Take me to that moment. How did you respond? That is a oh shit moment.

• 13:52Speaker 00

  Yeah, first of all, I personally, and sometimes you could perceive it as maybe cold. I can move on fast. I can come and say to myself, the plan that we had, that company that we had, okay, is not relevant right now. And so what does it mean? For me, and I'll get back to, I will mention this magic again and again, because it's really the core of Nirvan. For me, March 2020, we lost all of our revenue. Obvious to me that we lost product market fit overnight. Nobody needs this product anymore. So for me, it got back to the basic question. I do believe that there is this new category of business software that is designed for people, basically creating people centric product. That's something that I believe. We started the company with that belief.

• 14:37Speaker 00

  And I do believe that travel and expense is an important part of this. And I also think that people will travel in two years from now, again, March 2020. So all of my beliefs are still there, this new type of software, people will travel in the future. So now what do you do? Do you kill the company, do you hibernate the company, or do you double down? If it's just random, probably you need to hibernate the company or kill it. But if you still have this set of beliefs and everybody around you, your investors, a big part of your employees, still believe in it, you carry on, you continue. So you make some tough decisions, you cut costs, we did like pretty big layoffs. We've cut a lot of other costs, but on the same time, double down on innovation, double down on our go to market.

• 15:20Harry Stebbings?

  Can I be blunt? How did you expand the business? And how did you raise a double valuation for, at the time, predominantly a travel company in the middle of Covid? It's incredible, but how?

• 15:33Speaker 00

  It comes down to this set of beliefs. So I remember in March 2020, the issue was not only that, obviously, we are going down very fast. But at that point, people thought that the entire economy will go down. But at that point, there was so much pessimism. And I came to the team and to the board and was saying, okay, we're gonna definitely stabilize, no question about it. But we're gonna stay in the market and sell travel. And in fact, we're gonna expand to expense management and sell to T and E. And we're gonna raise money. And of course, the reaction would be, but how are you gonna do that? You're gonna call a CFO right now and tell them you need to use trip actions for travel? And they will tell you, we are not traveling right now. What are you talking about? But think about it, if you convince them, it was not hard to convince, the travel will come back.

• 16:16Speaker 00

  What's better than to do change management from this antiquated Concur and GPT, American Express GPT? Nobody likes it. The only reason that people are staying with that is change management. It's the best time to do it. Nobody is traveling, nobody is expensing, change now. And that was our pitch. And in April, it was very hard to do that because nobody would even pick up the phone. I think people were afraid that, you know, for their lives. But May, June, July, as the thing started to open up, travel was still not happening. But people would sign up with us. Our biggest customers would sign up with us, whereas like Netflix, Heineken, Adobe, sign with us on these times where people were not traveling. Because again, change management, the easy thing to do at that time.

• 16:59Harry Stebbings?

  So then you see change management, like now's the time, logos convert, like amazing logos like you mentioned. And then you go to the board and say, hey, look at our sales, look at our logos, they're up and to the right. We wanna raise a new round? How did that catalyze a new round?

• 17:13Speaker 00

  Yeah, so I actually went to, and back then, Greeno. And Neil actually looked at this. And because the first time, I didn't know him before, but he looked at this and I basically told him that story. Hey, listen, we don't have revenue. We are burning a lot of cash because the company, think about a fairly scaled. But here is our plan. If you believe in our ability to execute, the only thing that you will need to bet on here is that travel will come back. So just decide, do you think the travel will come back or not? If you think the travel will come back, I think we are a really good investment right now because obviously it was in better terms than what you would have gotten if COVID was not around us.

• 17:51Speaker 00

  And that resonated. Now, I will tell you, we've talked probably with thirty investors, twenty eight of them told us that travel will never come back. I've talked to one of the biggest VCs here in Silicon Valley, and a very famous one, a known one, a very good conversation, but they told me eventually, you know what? I actually don't think the travel will come back. And I said, okay, so if travel will not come back, it will be very hard for me to make a case for you to invest in the company. But the ones that had the courage back then to, I think it was only one bet, will travel come back? And but it will come back before we will go under or run out of cash.

• 18:24Harry Stebbings?

  I agree, but at nine point two billion, as an investor as I am, you have to see a forty billion dollar company to get me excited. I need to leave.

• 18:34Speaker 00

  Yeah, first of all, the nine point two billion, this is even more interesting, only came recently. So that came actually in the middle of recession after all of the correction. So as the vaccine came, we actually did a five billion dollar round, still an up round to pre-COVID. But again, it was up round, but only kind of back then, really based on what happens if travel would come back. Can definitely ask how MG and our current investors invested in nine point two billion when the entire market is correcting? And can it be forty billion dollar business? Listen, people are spending one trillion dollars on travel a year. Most of this is not managed. Why is it not managed? Because nobody liked to use a Conquer and American Express.

• 19:17Speaker 00

  So your employees are all over the place, half of the employees are booking outside, you don't have control on it, you are always frustrated by this. Everybody are fighting all day long. We think and our investor thinks that we can capture the entire market for business travel and the entire market for expense. If you take one trillion dollars of spent and you think about how much money is out there, nine billion dollars. Is more suitable to the execution of the company today. But if you look forward three years, four years, five years, in five years from now, nobody is going to use Conquer and Amex. Nobody is going to use Salesforce. Nobody is going to use software that makes you put something inside a ticket and then it goes for a workflow and then, I don't know, something happens.

• 20:01Speaker 00

  And the really interesting part of this you need to make to force it. Your employees, your salespeople need to use Salesforce. Your travelers need to use Conquer. Nobody is going to do this thing. People today are asking for something else and the technology, especially with the mobile and AI, allows for it to happen.

• 20:17Harry Stebbings?

  I love this is a path to a trillion. My question is, the other bet maybe, and I'm just like ideating with you. The other bet maybe is, will Ariel and Navan or Tripactions at the time be able to make the transition from point solution or more of a point solution to, as you described earlier, a super app? What do you think are the biggest challenges in moving from point solution to super app?

• 20:38Speaker 00

  Yeah, and you should probably ask, well, do your job for a second. I'm joking. You should probably ask me why even changing the name? Because Tripactions, the brand is good and people actually know the company. So why even do that?

• 20:50Harry Stebbings?

  Yeah, Ariel, this is my turn. Why are you changing the name, Ariel?

• 20:55Speaker 00

  Exactly. And I'm saying it because I think it is related to your question. But we wanted to actually create this new category, to show the way, to lead the way and show all of the companies around, you have to develop a new kind of software, a software that is more inviting. Navan, just the name, it's about navigation, navigating the world and about Avant. This is really where the name is coming from. It's about us inviting all of the employees all over the world to use Navan, inviting the company to achieve all of the company's goals while the employees are participating in it. So it's magical. And if you think about it in these terms, it also shows the way to companies that lost that way, to companies like Salesforce, like SAP. It shows the way for all of the companies around the world

• 21:40Speaker 00

  that today you can create really good software for the company and the employees.

• 21:45Harry Stebbings?

  What are the big challenges in moving from a more point solution to that super app?

• 21:50Speaker 00

  First of all, it's to bring it all together, right? To think about it from a design perspective. You're booking a trip and today you're gonna book a hotel, car, whatever. You're gonna do it again and again. So I travel a lot to London. Our biggest team actually is of Nirvana is in London. I'm traveling there a lot. And here's the thing, I'm always taking the same flight. I'm always staying in the same hotel. And guess what? I'm always going to the same coffee in the morning. I'm visiting the same kind of restaurants. So why do I need to book it again and again and again and again? It doesn't make any sense. I have all of these data. We know that our machine learning algorithm, which we've implemented six years ago, knows that. So why not just asking you, pre-book the trip? The trip that you're always doing, just book it.

• 22:30Speaker 00

  And I think that we are the best, and I mean it, the best all in one travel expense and payment solution. So we are the best by far. Bring it together to one app, but not just to one app, to have one app. Everybody can slap some things that are not connected into one app. But bring it to one experience, experience that creates value to both sides.

• 22:48Harry Stebbings?

  When you think about Concur and Amex, do you think they're just gonna sit back and go, ah, fine, let Nirvana go do this? They're eating our lunch. How do they respond?

• 22:57Speaker 00

  In the nineties, SAP and Concur innovated something. It was the first, I think, generation of IT software, this process. And how do you get efficiency by running workflow and some approvals? And basically, how do you treat people like packages? And it's not that surprising that Concur found themselves as part of SAP. It's like you are treating people like packages. And probably back then, that was innovation. But the world has moved on and these companies have lost their way around innovation. They don't know anymore how to innovate. They cannot attract the people that know how to innovate. Nobody would expect OpenAI to be a research project inside SAP. These companies actually, I would argue, will just die. That's what will happen because innovation happens.

• 23:39Speaker 00

  These companies lost their way around innovation and they will just die because they are not relevant. We joke that we are old. So we know a set of companies from the nineties. Take Seabird, for example, from the nineties, that are no longer around. Why aren't they around? Because Ben Iov came in the beginning of twenty twenty two years ago. And by the way, he lied. He was saying no software, right? He was lying. There is software, there are developers inside Salesforce and they just installed it in a computer that is in a bigger data center than your own frame data center. So he lied, but he got this attention. And how do I know that he's lied? Because I know that we are investing so much in software, so much in innovation. So there is software and this software is driving the organization today.

• 24:21Speaker 00

  So I think these companies that innovated something in the nineties, C Bell, SAP, Concure, and these companies that innovated something 10 years later, Salesforce, ServiceNow, you know, Workday innovated back then. Now, people want software like OpenAI, like Slack, like Navan. And by the way, look at the Slack story inside Salesforce. It doesn't really survive there. You can see by the minute how this software is becoming worse and worse and worse under kind of a new type of company. I actually really think that you ask will they respond or not? I don't think that they'll be around.

• 24:54Harry Stebbings?

  Do they not just become sales machines though? They invest so heavily in sales and then change management and stickiness is strong. And that's why they keep growing. Look at the numbers, they keep growing.

• 25:04Speaker 00

  Yeah, personally, if I look at the numbers, I think both Salesforce and SAP actually specifically now are not growing and in fact declining. So that's specifically now. I think they do grow through M and A. That's the only power that they have. So it's basically M and A and the channel. I'm going to use my connection into IT, into enterprise. To continue and push whatever I purchased yesterday through this channel. I used to work for HP and that was the play there. I did HP software, that was the play. Let's keep buying companies and then push them through the channel. Over time, there are massive changes. For HP, it was the entire cloud. There are massive changes and you are not going to survive it. I think the massive change right now, again powered by AI, is that companies want to have

• 25:48Speaker 00

  software that solves this problem without the need to enforce it, without the need to fight with their employees all day long. I think, yeah, I respect actually their channel, these sales organizations that they've created, the ability to do M and A, but eventually innovation, technologies, breakthroughs, always with them.

• 26:05Harry Stebbings?

  Can they not buy their way to survival? If they put 20 million, you can't, if they put 20 billion dollars on the table for Navan.

• 26:11Speaker 00

  Yeah, we are not for sale and there is a reason for that. And by the way, we've passed this test several times. Other companies could have sent me to retirement few times by just buying us. And we didn't sell because we think that we have something very special that can change, right? The way that software works in organizations. And that's why we will not sell. Now, can they buy their way? Maybe yes, but you actually see that the answer is no. Think about it, the number two and number three in Salesforce, one of them is George Butterfield. One of the best innovators in Silicon Valley couldn't stay in Salesforce. Everybody thought that he would be the CEO of Salesforce and he couldn't stay there. And again, but I am a Slack customer and the team right now is looking for alternatives. We love Slack, but you can see that over time, the search works a little bit worse.

• 26:56Speaker 00

  The buttons are moving to the wrong places. I care a lot about product and design and I think it deteriorates over time. So can they buy their way into it? Yes, but to a point, can they retain the team that made this innovation? They're proving that the answer is no, we cannot retain this team. Therefore, they're gonna lose the entire product.

• 27:13Harry Stebbings?

  So what pitfalls do you have to avoid to prevent you from becoming the next Concur or Amex?

• 27:20Speaker 00

  You are asking about my nightmare. I think there are probably a handful of companies that are capable of continuing to innovate in their 20th, 30th, 40th anniversary. I think, but I look at Microsoft, it's so amazing how they came out. Now they are like, people are talking about them right now as Google. It's unbelievable. I think, but again, there are a handful of companies and by the way, leaders. I've mentioned that innovation comes with leaders that can pull this off. And I hope that we will be able to pull this off to continue to innovate even in our 10 years anniversary and our 20th anniversary and so on. And it's not innovation for the sake of innovation. It's innovation that creates value, magic for our customers and for the users that are using one. And if we do that, I'll be very happy.

• 28:05Speaker 00

  That's actually my nightmare, that we will not be like that and will become an SAP exactly in the same way that Salesforce became SAP. Salesforce were the opposite of SAP. They were like, I think that Benayev cannot stand them. But over time, they became SAP and I hope that we'll never become an American Express.

• 28:21Harry Stebbings?

  You spoke about kind of product innovation driving value there. You chose to integrate OpenAI into your chatbot. Talk to me about that decision. What does it mean for the business? Why did you make that decision? And I guess, Broad, how do you see the future of AI integration to your company?

• 28:35Speaker 00

  A year ago, we launched our first bot. That bot today handles thirty percent of our support interactions. Basically behaves like a driving agent that will say change your flight, will handle a flight cancellations, will go and get the refund from an hotel. In fact, Navan's users, when they check out from an hotel, they don't need to go to the reception and get the receipt. We are through a bot that we have are actually calling the hotel, getting the receipt for them, automatically itemizing it and automatically expensing it. That's how much today our technology is effective around AI and machine learning. And all of this was not powered by OpenAI. OpenAI did a huge leapfrog.

• 29:18Speaker 00

  So they basically leapfrogged above all of the AI technology and machine technology, including ours, right? So getting back to the innovation, would you kill what you have because there was a major development in computing, software? So we decided to do it. We decided to kill what we have, to use the infrastructure. The bot is the bot, the UI is the UI, the ability to change a flight comes from our API to change a flight, but then to use their technology. And if the results internally, I think that this AVA, I think we'll probably by the end of the year will replace fifty percent of interactions in the contact center. And I think by the end of next year, it will replace ninety percent of it. But here is the cool part. Then there is the ten percent, the ten percent that solves the really hard problems.

• 30:02Speaker 00

  You're stuck somewhere and somebody really need to help you out. And I think this is where we're going to actually dedicate all of our agents to do the stuff that really makes sense. We're releasing right now in February, first version of AVA powered by OpenAI, and it would be amazing.

• 30:17Harry Stebbings?

  Ariel, just I'm naive. What makes OpenAI so much more effective than even your internal tools that you built for years and everyone else's stack? What makes it so much better?

• 30:27Speaker 00

  Yeah, I think people have a lot of opinions about it. I think it comes down to the data set. There was a lot of time, including with us, that was used to train your AI to be smart. Right? We used to call this thing Q. So what is Eversay Q? It's this kind of, it's the brain. We support somebody and that support was successful or not. You can measure it through CSAT, through are they going to repeat and calling the call center again? Stuff like that. So basically you would need to give the system this signal. Was it successful or not was the answer. So this training, I think, was the old way of doing AI. That's how we operated. And I think that's, by the way, how ninety eight percent of the companies that did AI did it. What OpenAI did is they proved that if you put a huge dataset inside this thing, magic will happen.

• 31:12Speaker 00

  I'm not even sure, I actually don't know how this magic happens, by the way, but I think that magic will happen. And we see it. I'll give you an example of the magic. You could have gotten to the bot that we had before OpenAI and asked to book the Westin in New York. And whatever will do at that point, she would ask you, what do you want to book? But I just told you the Westin. If you go right now to ChatGPT and ask to book the Westin in New York, it will ask you in what dates. Okay? So ChatGPT realized that the Westin is a hotel. Our bot, an entire IQ that was trained for years, three weeks ago, with the old technology would not be able to figure out that the Westin is an hotel. It's, they infused it with so much data.

• 31:54Speaker 00

  And that, by the way, GPT three, think about GPT four and how much more data is there? So they infused it with so much data that now magic happens. And that's what we see in real life, right? In the product that I'm using right now, it very soon will be available for all of our customers.

• 32:09Harry Stebbings?

  My question is, when we look at public markets, drive to cash flow, drive to profitability, unit economics, there's some uncomfortable realities that you as a business leader and me as an investor know. And that cuts out a lot of costs. And I know that you can absolutely deploy those costs to ten percent, but you don't need half of them.

• 32:27Speaker 00

  Yeah, I think that what we've shown actually in the travel industry, that you can run this business today. I'll give you one thing, we usually don't share our financials, but I will give you one number. Our gross margins today are seventy five percent. By the end of the year, probably it will get to eighty percent.

• 32:43Harry Stebbings?

  Oh, that is high.

• 32:45Speaker 00

  Exactly, and this is high generally. I think there are some tech companies that are doing better, but it's not a thing in services companies. So how do you get these gross margins in a service oriented business? And usually you don't. By the way, you can look at some of our competitors of public and you can look at their reports. You're talking about fifty, fifty-five percent gross margins compared to seventy-five today. Going to eighty, maybe even eighty-five, eighty-five is not model deal, but maybe even eighty-five in the next two to three years. This is highly profitable business if you think about it from a unit economics perspective. What does it mean? It means that businesses, like always with innovation, will become more efficient. And the businesses that will adopt it will get to see another day. And the businesses that will not will vanish.

• 33:29Speaker 00

  There is this famous Marc Andreessen, I think, blog about software is eating the world. I think software kind of ate the world and the companies that didn't embrace it died. And I think I would say maybe AI is eating the world and then eating software. And companies that will not join the party will not be around.

• 33:45Harry Stebbings?

  Do you worry about having such a core part of business and margin structure, I'm sure, over time? Do you worry about having that provided by an external provider?

• 33:54Speaker 00

  I think that eventually the bot can do one thing. It can answer questions based on all of the data that they have. Eventually, you need to operationalize it. You do need to change that flight. You do need to book that flight. You do need to have the suppliers' relationships. You do need to have all of these things. I think the mode that we've created is actually not around that technology. The mode is all of the infrastructure here that allows us to go globally, to service our customers globally, to provide one T and E report for all of the companies that are using us. That's the mode. Now, the other mode is more of a cultural mode. Do you have the courage to keep killing everything that you did because a new technology showed up? And connect it to our infrastructure?

• 34:37Speaker 00

  And I think if you do that, whether it's external or internal event, or it's not important.

• 34:41Harry Stebbings?

  So I look at businesses like machines with levers. And when you think about eighty percent gross margins on yours today, you have a lot of leverage to go down to sixty percent. And put twenty percent more in marketing, brand, growth, like fucking burn the boats, go. Why didn't you do that?

• 34:58Speaker 00

  So actually, it's interesting. In a part of Nirvan and the rebranding, we are opening our product for everybody. So everybody can go and sign up to the product. As part of this, we are introducing a new cost structure for different markets. So for example, on the lower end of the market, we are free, we are completely free. You go in. So I think if you're basically talking, should I use my gross margins to reach more people? The answer is yes. That's actually what we are doing. We are doing another thing. We are actually introducing our own loyalty club, which means costs to make you more loyal to us. So again, how can we do all of these things? Because we've gained over the last eight years because of our backs on technology, on machine learning, on AI.

• 35:43Speaker 00

  We've gained a lot of efficiency. When I'm working in an airport, I was, I have to tell you this story. People at Nirvan here hearing this story because I cannot stop mentioning this story recently. I was stuck on an airplane with my family. The trip kept getting delayed on the airplane. You sit four hours there eventually, and we have a tight connection in Houston, and we've already missed a connection. So what we're gonna do? And I'm using obviously the Nirvan product and I keep getting notifications of exactly what is going on. You're going to miss your connection, but don't worry, we took care of you. By the way, that was infused both by our product, technology, but also by this ten percent that I'm talking about. The VIP travel agents that we have, this is the Reid and Mackay acquisition that we had.

• 36:25Speaker 00

  And eventually I was in Houston, standing in the immigration line. I had everybody from the flight with me. All of them are booked on the four thirty flight that just got cancelled, by the way. I am booked on the nine thirty flight. Do you know why? Because I used the best solution on the planet to manage my travel, and this is Nirvan, and I mean it. So now I'm waking up in the morning and I'm walking down this immigration line and it's painful and I mean it. And it's really not just money for me. It's painful to think that if all of these people would have used Nirvan, they wouldn't actually need to wait here in the Houston airport until four thirty to the flight that actually got cancelled. First of all, they'll know that the flight got cancelled and two. System will automatically book them on the right flight. So it's painful for me that people are not using us and still using something that is really bad software.

• 37:10Speaker 00

  Come care and something that is really bad service like AMAX GPT. And to your point, I want to go to market faster, open it to everybody and remove any type of barrier for entry. And we are going to use our economics for that.

• 37:22Harry Stebbings?

  You should give every employee a hoodie with a QR code that they should wear to airports. So you can download it. So when you're walking past lines, you're like, hey, download it here.

• 37:30Speaker 00

  This is amazing idea and maybe I should have you joining our marketing team. Like with this idea, I'm actually going to talk about this with a team later today. It's a really good idea.

• 37:40Harry Stebbings?

  Oh, you're not the first person to talk about marketing with me. My question to you is, I'm fascinated. You set up a casino loyalty scheme that that's your own. How would you define a retained user?

• 37:51Speaker 00

  We are very loyal customers and install base, but I want them to feel great that they didn't compromise. If they booked through their corporate recommended solution or enforced solution. In fact, I don't want this thing to be enforced. So we are making sure that they will always get their loyalty from the hotel chains, from the airlines. But also will get their benefits if they save company money, but also from us. And that's getting more of their loyalty into us, into Navan.

• 38:17Harry Stebbings?

  But when you look at Facebook, they said when you get five friends, then you're like a retained customer. I think it's three orders on GoPuff, you're a retained customer. What's your understanding of what a giant main customer is?

• 38:30Speaker 00

  Because of the expense side, we actually know if you booked outside. So we know if you booked outside, if you know that you're getting 100%. What we are calling inside attainment of the company's budget. We know that we are retaining the employees and the customers time and again. Not just as a big customer that maybe use us 50% of the time, but retaining them all the time. So we are comparing this data all the time and we have a really good idea of who is a user. And also who decided to not use us? If you're not using us, we're getting curious about it. Why? And we'll contact you, we'll call you. This is something that we started when we started the company and all the way till now. And based on their feedback, we are introducing stuff like the loyalty. Club that I've mentioned.

• 39:12Harry Stebbings?

  What percent of customers have a hundred percent attainment?

• 39:15Speaker 00

  It's, I think that it goes by a segment, more of the higher end of the market, what we are calling named enterprise. And even mid-market will get one hundred percent attainment. As you start to go down market, you are getting more towards the eighty percent attainment. Even that number, if you go and compare it to the industry standards, that's compared to fifty to forty to fifty percent attainment. So this is significantly more than what everybody else are getting out there.

• 39:40Harry Stebbings?

  Now, I've had so much fun with this. I want to do a quick fire round, so I say a short statement, Ariel, and you give me your immediate thoughts. Does that sound okay?

• 39:47Speaker 00

  Let's do it.

• 39:48Harry Stebbings?

  Okay, my friend, what does success mean to you?

• 39:50Speaker 00

  I would say making my kids proud. That's the most important thing for me, that they will be proud of me.

• 39:55Harry Stebbings?

  I love that. What does being a great father mean to you?

• 39:57Speaker 00

  I think it's everything. I'm spending a lot of time with my kids, although I'm running a company. The thing that I like to do the most is to spend time with my kids. It means everything to me.

• 40:06Harry Stebbings?

  What opportunity have you not taken with trip actions now, Navan, that you wish you had have taken?

• 40:12Speaker 00

  I think that had I known how things around travel will happen after Covid, I would have invested even more and be more aggressive on gaining more share during Covid. So I know that to be more than triple the business over Covid, I would have gone much more aggressive if I had the side side of when Covid will end and in what kind of scale.

• 40:29Harry Stebbings?

  What's the most painful lesson that you've been through? But you're also pleased to have been through it for the learnings.

• 40:35Speaker 00

  I think it's really scaling up a company before Covid. We are growing fast, five years year over year, very hyped. And I think we allowed some people to get into the company that are usually joining the hype. And I've learned it the hard way, will never happen again. I'm happy that I learned it and I'm happy that also I had the opportunity to reset it during Covid.

• 40:55Harry Stebbings?

  What's the single biggest tip you give me on hiring?

• 40:58Speaker 00

  Hiring, first of all, embrace the fact that you're going to make mistakes and just do the correction fast.

• 41:04Harry Stebbings?

  Where is Amex in ten years? Is this winner take all?

• 41:07Speaker 00

  First of all, it's Amex GPT, so that's the travel side, and I don't think that they're going to be around. I think it is a winner takes all. Even if it is not, the other one will definitely not be Amex. It would be a tech company that is hyper servicing the company.

• 41:20Harry Stebbings?

  What would you most like to change about the world of venture?

• 41:23Speaker 00

  I think there is something powerful here, which is the echo kind of chamber, but it's also what kind of creates a lot of frustration. I think that sometimes people need to open their minds outside of Silicon Valley.

• 41:33Harry Stebbings?

  Final one, my friend. 2028, okay, we're going to sit down again. I'll be a silver fox then, but 2028, where will we be then? Paint that picture for me.

• 41:43Speaker 00

  I think everything around us will be more efficient because of AI and maybe the opposite of what we think. All of us will be smarter because of AI. Remember that we had this calculus computer when we were kids and then doing mathematics? I think this is the new type of that thing. It will make all of us smarter.

• 41:59Harry Stebbings?

  Ariel, my friend, I've loved doing this. Thank you so much for joining me and this has been so much fun.

• 42:04Speaker 00

  Thank you so much. I really enjoyed it. The time really, you know, flew by here. It was amazing. Thank you.

• 42:11Harry Stebbings?

  I mean, my word, Ariel did not hold back there on predictions for Salesforce, Amex or Concur. I absolutely love that. If you want to see more from us, of course you can on 20vc.com or searching for 20vc in YouTube. Love to see you there. But before we leave you today, if you lead a team and have ever had to buy software or services, sell software or services, hire contractors or make a deal, basically everyone, let's admit it, you've probably experienced how slow and confusing contracting can be. It doesn't have to be so hard, though. It's 2023, we need contracts to keep pace with the speed of modern business. And that's where Ironclad comes in. Ironclad is the leading contract lifecycle management platform for innovative companies.

• 42:52Harry Stebbings?

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• 43:35Harry Stebbings?

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• 44:16Harry Stebbings?

  As always, I so appreciate all your support and I cannot wait to bring you an incredible episode this coming Friday.