Uncovering tax credits (aka free money) for startups with MainStreet founder and CEO Doug Ludlow
The below is a full (unedited), machine-generated transcript of a Youtube session / podcasting episode I recorded in August 2022 with Doug Ludlow, founder and CEO of MainStreet. You can view the video/listen to the podcast on Youtube, Apple Podcast, Stitcher or wherever you get your podcasts.
Erasmus Elsner 0:19
All right. Welcome to another episode of the Sandhill Road podcast. I’m your host, Erasmus Elsner. And my guest today is duck Ludlow, who’s the founder and CEO of Main Street. Main Street is a startup that helps other startups to claim and uncover resources, tax credits alongside other tax credits. And you’ll talk about that we’re gonna uncover that duck really happy to have you on the show. Hey, thrilled to be here.
Doug Ludlow 0:43
Thanks for having me.
Erasmus Elsner 0:44
And this is really not your first time in the found receipt, I looked into your background, and you have two other even three other companies. I think the first major company was a company called hipster. And the next one was happy hold company, which he ended up selling to Google. I want to start really, you know, with this early experience, hipster launched it in 2011. When I look at the funding round that you pulled together in 2011, Google Ventures that 500 startups Mitch Kapoor night bank, Charles River ventures, and you have this mysterious landing page out there for a while, that said something cool is coming to San Francisco. And then you offered a tent a bonus for engineers to join the company, as well as a one year supply of red and blue. Talk about this first company as a good segue into your founder life.
Doug Ludlow 1:36
Yeah, so the this company hipster, it was a location based photo sharing company. So a little like Instagram in the early days, but tied far closer to the location you’re sending. Right? So like you go to, I don’t know, somewhere in San Francisco, you go to Union Square, take some pictures, you’ll then also be able to see the pictures that were shared by others the time so it’s very a promise was timed. And years ago, very mobile, social, local, right. And also, that was kind of the early days of we can say growth hacking, I suppose you can say. So coming up with interesting landing pages I was don’t really see that anymore. But like long coming soon lists rather, we are without pioneer viral gimmicks, that helps bring a lot of attention to our company. So I learned a lot there. It’s funny, we’re often remembered far more for our viral gimmicks than we were for the product itself to the promised status you million users by the end. But at the time, we heard so far, it clips by Instagram, that it wasn’t even really a competition, which is one of the reasons why we sold but it’s just kind of funny to me that how some of those early early things designed to get people’s attention still dude, and years later at is a really fun to work on that. And also a nice reminder, though, that like all the viral gimmicks in the world, aren’t going to get you long term company’s chest right here, we still lost out to Instagram, you wonder how much of our of our time should have been spent working on the core product rather than things that drives you know, eyeballs, but not sustained growth?
Erasmus Elsner 2:56
Yeah, but what I like about you is you you keep coming up with these givens and also, the way you actually launched Main Street was through a gimmick by offering those remote incentives, I think was also 10, chain scented smoke yellow to locate outside the Bay Area. And that basically led you on a path to uncover the sweet spot for Main Street, right. And so it’s right, it is a pattern that’s really this growth packed mindset, a few that led you down this path, or Main Street photo sharing apps for the taste of the time. And then you transition for a while you did the rest invest at AOL. Before launching right the next startup, which was happy home Company, which was a slightly different segment, you ended up selling to Google, maybe talk a little bit about that.
Doug Ludlow 3:38
So happy home was the concept was like imagine an Angie’s List or a thumbtack with a virtual concierge, right? The idea that if you own a home, you have no often have no idea how to actually take care of that home. Right? I projecting I’m not a handyman by any sense of the word, I can’t do anything. It’s also a huge pain to find a contractor right out if he ever tried to find a way to get a plumber or get an electrician. Like there’s a lot of scammers out there. There’s a lot of you can’t always trust online reviews. So you can provide a really easy, trusted experience. A lot of this came from my experience buying our first home 10 years ago, you know, small little townhouse in Santa Clara and I realised I’m on my own, I’m in trouble now. So we start with this company that had begun to take care of that problem learned a lot raised about three and a half million for this. And although we talked about it, it was really an aqua hires is what it was, which is a kind word for saying it was a failure that everyone gets jobs though. So once was one over to Google and help build the Google Home Services ad unit. And it was interesting, you many of the lessons I learned at the small startup, working on Home Services. Were just as applicable at one of the world’s largest companies were at home services there. I don’t know if anyone’s good. We did a good job of Google on Toggle unit. We did a good job at abdomen. I’m glad we did. I don’t think anyone’s ever really cracked that space yet. So I think there’s still an opportunity down the line for a huge company they can have you know a And outside success in the home service space. That wasn’t a lot, we
Erasmus Elsner 5:03
learned a lot. There’s a lot of fun but huddle space went into cracks. And as you mentioned, you did find some traction, I think it took you 384 days to get the first 1000 users and 1 million in ARR. And then it took you 38 days to get through the next million in ARR. So there was, at one point, there was a lot of traction in the product and what we are building and you did again, race from some of the best firms, I think Chris Sacca Lowercase Capital, SV Angel, and the bumps grew. So how was it to go back to the investors after the first company, and then basically go into another quite up space, I think the thumbtacks of this world were just comes around, I was to be back in the founders den. And there
Doug Ludlow 5:46
it was, it was very different. Right? It’s amazing how quickly the tech industry reinvents itself, right? The investors who were hot a couple of years before, we’re not always the same, somebody already retired, right? Somewhere, we’re moved on to different things. Every company, there’s always been, you know, investors messed, and then some of them. So the next one, the big reason people don’t, is not the idea, or me or the company, it’s just they’ve either retired or moved on or done something else. So there always is a bit of a reinvention that happens of yourself of your network, you know, it’s a lot those of us who were were incredibly helpful, incredibly useful. And I think one of the lessons I learned is happy home, went beyond the lessons of an early social unit, she was able to get a totally social app, we didn’t make a dime of revenue the whole time, right. But the whole point of Home Services is you’re trying to capture a huge revenue opportunity to to value opportunity for customers, right? People are spending money on their home, like, you’re at the intersection of that. So I think that really pushed me along as a CEO, going from, hey, here’s an interesting user interface. Here’s something that will spread virally toward, hey, you got to, you gotta keep all of that yet still have make it a phenomenal user experience. I still have, you know, viral and shareable growth. But now he’s making money. Right. And so that was my big lesson there learned quite a bit and evolved quite a bit as a leader as CEO, the company is much larger. And hit Trevor was I think hits you the max, we were it was like five or six, I haven’t got to 2526 27. So it was the scale
Erasmus Elsner 7:08
up. And then you did again, your two years mandatory rest invest at Google before he went off to the next adventure, taking some colleagues from Google. And you started mainstreamed, which as I said, helps you to discover and claim tax credits. And we’re going to start with x credits actually are what federal tax credits actually are. I’ve given away some of the thunder of the founding story, but maybe talk about this first version of Main Street, and then how it really found this niche of claiming tax credits and helping startups clean those tax credits.
Doug Ludlow 7:41
So in March of 2019, after I’d been at Google for about two and a half years at that point, I made some really good friends there worked on the local services, Home Services, small business ads. And I two guys can Lindquist and Daniel Gryphon, who become good friends. And we talked about starting a company for a while. And it really started to get serious in March 2019. And we knew we want to do something together. But we didn’t know we wanted to do. We realised that we wanted to work on something that was going to be meaningful, that we could devote years of our lives because that’s really what a startup is, right? It’s not just a quick flip this is, if successful, at least a decade of your time, right? Certainly three to five years at bare minimum. And we want to focus on the things that we care deeply about. And after a lot of conversations, a lot of barbecuing in my backyard, you know, some slogans briskets and stuff. It was we had a shared interest in while it shared concern over what we viewed as a growing inequality, and inequality of education of wealth of opportunity. That was rising, most visibly the time between, let’s say, wealthy areas like San Francisco and New York, and much of the rest of the country. And same thing for the rest of the world actually, right. You have these, you know, talent is attracted these very expensive, big cities. And how do you help spread opportunity beyond the city’s you know, I? How do you help spread great jobs, you know, I grew up in a small town are actually pretty large town for most places, in the middle of Central California, a city called Modesto, but 20,000 people, and you know, the economy there has really just been beat up over the last 40 years to where if you need a good job, you have to leave your hometown most of the time. If you’re a small business, it’s hard to be successful. And so my motivation at the time was like, How can I help? I mean, forget the rest of the world, you know, that’s important, hey, I looked at my neighbours or my friends, looking people I don’t, how can I help the economy? My hometown? Right. And that’s where we really started focus on how do you inspire jobs opportunity in places like Modesto? And we very quickly started thinking about through startups and small businesses, right? These are things that, you know, I’d much rather have 1000 thriving small businesses in the city than one exactly right. The factory can leave the 1000 small businesses, they can keep going. And so we officially kicked off the company, I think, October 1 2019. And our initial take on this was, Can you move Small Business workers, startup founder was from let’s say, San Francisco to other places, right, can get them removed their copies. And as you mentioned this $10,000 to leave the Bay Area campaign went super viral, international 1000 people signed up. But the interesting thing that we learned at the time, was it dozens of cities and states and counties reached out to us, and let us know, they already had an incentive programme that attract jobs and track innovation. And that was the first inkling that wait a second, I think we’re onto something bigger here, right. Rather than getting people to move somewhere, could you tap into the pre existing network of incentives and credits in your IRA things, hiring programmes that already exist around the country around the world, and our focus began to shift from nearly November of 2019. So that’s what we landed on where we were in February of 2022. Can you create a network of the tax credits and incentives and be a software layer that helps connect small businesses and startups to that invisible layer of tax credits and incentives, and that was really the journey, and it’s so far proven to be the right call to make that move. Most of our companies now have employees all over the country, you know, outside of places like San Francisco, New York, will never be done, fulfilling the vision, but like, the spirit of overdue is very much in line with that. And, yes, but that’s been quite the journey, then we’ll talk about the last two and a half years, but the motivation was out of you inspired great jobs and great opportunity around
Erasmus Elsner 11:21
the world. And it’s very interesting on how you landed on this from, you know, being a very small atomic operation, focusing on something quite related for very different still in the beginning. And then talking about what is really the core of your business, these government tax credits, and too many people have lost them if I use the word tax. But let’s really try to uncover and see what this is really all about, because it can result in practically free money to many startups. So just to give some highlight figures, 100 50 billion tax credits every year, only 2% of startups actually claim those tax credits, if we take r&d tax credits, aims to basically foster the upskilling of the American workforce to produce highly skilled labour. But paradoxically, it is only the large corporations, the Amazons, the apples of this world, who actually have the lawyers and the tax accountants to take care of the pilings, and to actually do all the nitty gritty, red tape. And this is exactly where Main Street is coming in. Right. And that’s just really the tip of the iceberg. As I understand these current tax credits, there’s work right opportunity credits, there’s disabled access credits, there’s a whole layer of other potential credits that you’re tapping into. But I’ve taken away too much already, maybe give us the highlights why this is such a big opportunity and why nobody’s thought about, you know, having a software layer that takes advantage of it is practically free money.
Doug Ludlow 12:53
I mean, what a great explanation, you want to come run our marketing, you just explain it better than I ever could tell. It’s exactly right. There’s actually 2500 different credit and incentive programmes United States, when you look at everything from the Federal layer, down to the city, and state, and county, most of our work is done right now at the federal and state level, the most value, well does come from these federal estate research and development programmes all kind of hammer home the point you mentioned earlier, that all of the companies only represent about 20% of the people who apply for these credits, they get about 95% of all the credit that’s given out, right, small businesses barely scratched the surface, there’s 36 million small businesses in United States, right. And really only about 6 million employee a tiny fraction are actually getting credits that are eligible for so it really is an enormous opportunity. And yes, why has this never been done before? Right? Well, let’s talk about that. So the research and development tax credit launched in 1981. So it’s been around for 40 plus years, the Work Opportunity Tax Credit launched during the Clinton administration, so roughly 30 years ago. But the reason no one had done this before, is because it was hard. And by that I mean, no one’s business systems talk together. So for example, it was you this the 80s, odds are, you are keeping track of everything with either a pretty archaic computer system are likely, you know, within a table, the amount of work that went into just gathering all the proper information, like what are people spending their time on? Yeah, what did the expenditures was an incredibly costly, very, so if you’re Boeing or Lockheed at the time, no problem, right? You have the teams of accounts to do it. If you’re small business, no way. Right. There’s, there’s, there’s no way you’re gonna have the time. You know, fast forward 40 years, and you really have this kind of amazing API ification of the world, right? Over the last 10 years. Let’s face it over the last five, normal business systems have gone from being pretty standalone, they can all talk together. So all of a sudden, my HR system can talk to my payroll system can talk to my bank account can talk to my accounting system can talk to GitHub can talk to JIRA, like all least things one. So we’re able to skip about, Gosh, 95% of what an accountant would have just had to grab manually. We didn’t put that all into one location incident. Right? So the technological advantage, we have it with his API ification of the world is pretty extraordinary. And then, on top of that, and you can build up think about all the advances in FinTech, and how, you know, if you’re able to appear into someone’s bank and teach brands like it would take in teams of accounts to them for now, we can do that instantly. So now our challenge is, we have all this data, how can we organise it, understand it the right way, and then start to match you with credits. So we couldn’t you could not have had a main street 10 years ago, you’re going to have consulting firms, consulting firms have existed for 30 years, they’ll have a tax credits, probably in one form or another life, people hoping to get government money is it just had hundreds of years. So it’s not a new concept. But the why now? Well, technology is finally at the point where it’s worth it for a small business to do this, it’s not going to cost you $100,000. But with the odds of getting something being pretty small. Patty McCormack from the not for a newsletter subset newsletter, he also mentioned this 2015 protecting Americans from tax hikes, act X, that also plays a role in making it much easier. Maybe you can expand a bit on that. So back in 1981, when the r&d credit was was launched, it was only applicable the credit you dot was applied to your income tax as a corporation or as a business. So that means that had to be profitable for the matter. So again, if you’re someone like Boeing or Lockheed at the time, yeah, sure, either profitable, you buy some of the credit, it’s attached to them. Most startups, especially most arms burned out for all may not be profitable for years. So they really didn’t benefit from the r&d credit, or the bath act that I think finally kicked it in 2017. By the time I was asked, and everything, so only a few years ago, really, it let startups and small businesses who are under certain size, start taking this tax credit and find your payroll tax. Now, payroll tax is something you pay every time you have to pay employees, right? It’s the Social Security tax, essentially, you pay. So here, you basically get that either a refund, or you could just simply not withhold it and declare the credit you’re using. And that’s something that’s applicable to any taxpaying company in the United States. So open up the door, I believe there was something like 60 70,000 of venture funded startups to the United States, there’s another like 850,000, growth oriented technology focused small businesses. So suddenly, that opened up the path act, open up made r&d useful for almost like a million companies. So there’s this big opportunity for a lot of companies are starting to do this, you know, the stats of like 2% of small businesses actually take advantage of this hopefully will change, you’ll start seeing double digits of people actually claiming these great,
Erasmus Elsner 17:48
now talk a little bit about the Mainstreet product and how it’s used. You sign up, you connect your gusto, you connect your work link. And then basically you have those tax credit hunters employed, whether it’s robots, whether it’s humans on your side, and then you get a report back into shorter time periods, much shorter than if you had a tax accountants would take them there and weeks to come back with an answer,
Doug Ludlow 18:14
you actually describe the product pretty pretty well. Right? The key is connecting your HR system, your payroll system, your accounting system and your bank. Right. From that we have all the information we need. And we start matching. Right? We started understanding like, how many hours? Are people working on these specific things? How much has been devoted to supported activity? Right? What are you spending money on? Right? There’s some expenses you can spend your cash on that doesn’t qualify for rd others absolutely does. Alright. So the benefit of sitting where we said is we’ve now processed 1000s and 1000s of companies seen hundreds of 1000s of employees come through and senior, maybe billions of dollars with a spend at this point. So we’re really good, I can very quickly identify, hey, companies like yours, have seen this before, when you’re spending on this type of thing it likely qualifies or it, making sure people are always compliant. Or hey, this absolutely does not qualify. So most of this should happen behind the scenes for companies, right, you connect it. And you know, if you’re wanting to draw on the happy path, you don’t have to do much beyond that.
Erasmus Elsner 19:15
And talk a little bit about success stories, the war on average, she’ll take those companies 50k, but talk about some of those success stories and how they benefited from your service.
Doug Ludlow 19:25
You know that those are old numbers that were much higher down. So we’re going to release pretty soon we’re about to do a relaunch the site, new branding, everything. So we’re gonna talk about much hired, obviously, to get the products better. We have more credits. But I’ll start actually from some of the earliest days we have companies who I am, this is a tonne of them, but enough to where we save some companies from going out of business. At the early stage of the pandemic. This was if you recall, there was a phase where the first couple months that had dedicated without things were done in the startup. This is before you know 2021 came I never would raise a tonne of money and just went crazy. But we the house keeps a lot of companies lights off, which was really gratifying, right? That’s our full goal. How can we help companies You know, create jobs create opportunity can’t create jobs or opportunities for companies closed, right. So that was fantastic to be part of. And then the over and over again, we see companies who do end up saving a couple $100,000. Right allows them to employ some additional workers in market more. I, you know, it’s like the size of a pretty large Angel check, or even a VC check for some startups. And especially if you’re a small business that doesn’t deal with have access to venture, this is a huge source of capital for you, there’s not an interest payment, it’s just free money. You know, when I were to do I loved working in Google, so I’m not gonna throw her under the bus. I love it. I love working on ads, right? I mean, you’re helping a multibillion dollar company make more billions like you’re helping people in abstract. This is very clear, you could see like, Hey, this is a company that’s trying to do something interesting, try to live their entrepreneurial dream, and I and my company or our company helped them achieve that. And that’s, you get to sleep pretty well. And I
Erasmus Elsner 20:53
love it. And talking about the customer profiles, we mentioned that part of the customer onboarding is often you know, linking your QuickBooks to a rippling, your gussto, your just works. So it’s often digitally native companies who use those technical systems to support the journal workflows. And is it also something that for, you know, the regular, smaller mom and pop shops in middle America that might not be as technically sophisticated? Might be an interesting offering for them? That
Doug Ludlow 21:23
is a great question. Right? So let me break it down for you. There’s 36 million small businesses in the United States, about 30 million of those are sole proprietors. Right? Many of them just don’t use any of these right? Out of the 6 million employer, small businesses who employ at least one person. I love that about a million people that I mentioned this previous that fall into our category. These are the people who are digitally native, who, who have adopted, you know, modern business systems. The interesting thing is, there’s enough of that group for us to continue to grow, continue to refine the product, and over the next 10 years, you’re going to start to see the 36 million small business owners, they’re all going to become digitally data, right? This is a process that, you know, 10 years ago, most small businesses were not right now, far more than they were before. And 10 years from now, let’s we’re kind of riding this rising tide. That is, it’s no one’s like, it’s not because of any one any one company in particular, it’s not because of intuit or Google rippling. But all those companies in aggregate are making your toast, right toast like, middle audience for restaurants go online. Companies like service Titan house, call Pro, have helped home service providers go online, so give it another five to 10 years, and you’ll see our market go from being you know, a million or so to 5 million. That was in the decade, we have 10s of millions now. Now, it’s obviously a secular trend, that’s going to continue very much.
Erasmus Elsner 22:44
Nothing. Another thing that I wanted to understand a bit better, as you know, the reason why people are not looking for those tax credits, apart from you know, this thing very complex. And there was one reason that popped up when I looked through Twitter, that people were saying it might increase the risk of audits. And that’s something that we’ve also thought about quite a bit. I think you have a guarantee of an audit protection. But I think in the people’s minds, and especially smaller business owners, they’re still this don’t mess with the IRS. What is sort of your response to those people, those critics who rather not get involved with the IRS at all,
Doug Ludlow 23:20
you’re dealing with taxes, you want to make sure you’re doing this, right, right. I think it’s vital to make sure you’re doing it correctly. And that means using someone like Main Street, if you don’t use on us use a really great r&d accountant. People get into trouble with things like this when you start doing it yourself. I mean, not saying people shouldn’t do it itself. That sounds very self serving me. But there’s certain things if you’re not paying attention to the nuances of what should categorise what shouldn’t it could create a flag and the penalty means you just put to pay the back taxes plus a 20% fee. So it’s not a criminal expense, but the same time you want to avoid the hassle. This is a case where if you work with an expert, your odds of audit actually the odds are very low to begin with the word ARD expert, you’re probably gonna be in a pretty good place to begin with, especially somebody Mainstreet where we’ve got, we’ve seen 1000s and 1000s of companies and provide a full guarantee you’ll be in a good
Erasmus Elsner 24:08
spot, for sure. And then something else I thought about was Where are you competing with? And I think the main competitors you just mentioned, which are those classic r&d tax accountants or tax credit agencies, as they’re called? And you have only website basically three reasons why Mainstreet has a significantly better offering than those traditional incumbents. One is the tech enablement, we you mentioned that before, you have to basically taking the time from 20 to 40 hours to basically minutes and then there’s the pre signings aspect that we haven’t touched upon. Maybe talk a little bit about this pre finance of those tax credits.
Doug Ludlow 24:49
Sure, so we found the ability, in some cases for you not all cases, but for you to get early access to capital. We know the government is going to be writing the check. You know, there’s other ways you can get the credit. It’s guaranteed Government is always maybe slow, but they’re dependable. And so we offer a bit of an advance on some of your tax credits that can be used to either offset fees or to start getting access to capital early. It’s not the same thing. But it’s similar world to let’s say, a merchant cash advance or to revenue factoring like Python caches to, you know, we’re able to look into the future and see, hey, you have something coming your way, let’s see when you sell without her, so that that is an advantage. Unlike other people doing tax credits, we see every aspect of your finance, we’re able to underwrite it extraordinarily accurately. And that gives us an advantage. Let’s
Erasmus Elsner 25:32
started out, you know, tackling the market of startups. Was it more like whitespace? Where they were not using any warranty tax agencies? And you basically, were the first to claim this for them? Or was it also that they were using some form of tax auditor or tax accountant? And then there was some switching? Very little
Doug Ludlow 25:51
switching? And we still find that today? Like, it’s, it’s amazing, I think, is the sum of the 10,000. Startups are formed every year, right? And so there’s always a new network of people who are just getting started who haven’t even bothered to think about this. So there’s there’s always a pool that meets some of that first choice. But you’d be surprised how many accountants don’t help their companies with a sudden, like, it’s pretty, pretty shocking. Most people will just count as to just work on a new taxes. We’re gonna bookkeeping, and aren’t experts in these other credit. So we really felt that there still is a lot of blue ocean or whitespace, or clear sky here.
Erasmus Elsner 26:25
All right, let’s talk a little bit about traction. And you guys are really on a rocket ship trajectory. They’re doing Corona. And I think you crossed the 1 million Arr unraid. In 2020, save clients on average 51,000. And then in 2021, you crossed 15 millions in revenue. And it was really a rocket ship trajectory. I saw some cohorts there, comparing you to slack to the Twilio is of this world and your cohorts were really crushing it talk a little bit about getting to this really early, overnight product market fit.
Doug Ludlow 26:59
It’s been intense. It’s been fun, right? We launched a pilot of our product in March of 2020. Right, right is beginning to open. I did okay. But then once we introduced we refined it, we put a tax credit season on it has added the financing advance option. And it just took off and never really slowed down. I’ve never been in an experience like that before. And also trying to manage that and scale the team in the middle of a kind of the height of the pandemic, who was a it was it was intense, but it was a lot of fun. At the time. Yeah, you’re growing super quickly. You’re hiring a bunch of people. And it was a very good thing. It probably aged me a bit. But the first time in my career, I really understood what like being part of a rocket ship was like to where it’s things just are taking off.
Erasmus Elsner 27:45
It felt pretty well. Yeah, I mean, if I look at the funding trajectory, I mean, it’s quite impressive. Here. You basically raise a Series A that used to be probably a series D 10 years ago, strength 60 million series A just the year after a rather small two and a half million seed round signal fire was actually leading the seals in a I talked to some of your investors there at the Bosque ventures as well as gradient ventures, which I think the lead for the seed round. Maybe talk about, you know, this pre M that series A basically were cashflow positive, you did not need the money at the time. But you were approached by investors, obviously, it was a crazy two years, especially everything tech and every growth investor, every type of global of this world was looking for, for the signal seed investors, and they were willing to pay three times the valuation a few days afterwards. Talk about this crazy fundraising journey. I mean, you’ve done fundraising before, but this one was a special one, I guess. It’s nothing like
Doug Ludlow 28:45
nothing like this. Nothing like the environment we saw. And it was interesting to see the difference between you know, when we started fundraising are very, very early a seed, which is October 2018. So when we started, like, hey, we left Google started off doing some very pre precede, you know, the market was, it was not bad. But it was. It was cool. By the time we started raising our series, a Murphy had heated up considerably. That was December 20. He’s funny, and yet the craziness was, that was the beginning of the crazy, right? I had the amount of VCs, I had it October, November, who were banging down our door like, hey, we’ll invest this and valuations like crazy, unjustified. Right. And so, you know, kind of hanging on for dear life. I mean, there’s a reason why the market crashed down hard, right? It was unsustainable. But it was interesting to ride that, you know, the resource that we took on in January, February of 2021. With the round came out, we were able to use to really solidify our platform expand. So it’s been money put to good use, and that will raise another round to the future. But it is wild comparing where the whole industry was a year ago in August 2021 compared to August 2022. At this point, I really glad our business fundamentals are sound right, that we’re in a good spot. but it has been a wild ride, to keep up with us this fundraising site
Erasmus Elsner 30:03
grow slow, grow real, it takes time to find the right employees find the right talent to join your company, especially if you have too strong tech angle that you have with all these integrations with the different software providers, it is really important that you have the right people on board. If you had raised in October 2021 150 million at three times the valuation, you would have to buy that now. And you would have to grow into that valuation, no absolute, which a lot of the companies that raised at that time will never be able to do that forever. But maybe to hit you hear a little bit on a soft spot, you measure on Twitter, that you have to lay off 30%, it’s better to measure once than to cut twice, right? And to betray those cuffs early on, and get to profitability and get the metrics to where the market wants to be. Maybe talk a little bit about this current environment. Sure, well, May of 2022.
Doug Ludlow 30:56
And we conducted our layoffs will likely and hopefully be the worst month making sure it’s ever had. There’s a lot of great people on the team that we say goodbye to and it was terrible. That being said, we’ve entered a new economic reality. And it’s gone through. If you look at public company multiples, for example, many of them are down at 90%, startup multiples down at 90%. Whereas he used to be very easy to go raise cash and you could be unprofitable and burning cash for years. And still, it’s all about top line growth. I think we made the call earlier than most I started in this business like 500 company layoffs since we could have to hire it’s not that long ago, we made the hard decision. But I think the right decision to focus on profitability and unit economics, right. And we’re on track by hopefully q1 of this next year to be a profitable company, and then get to kind of control your own destiny rather than react to how the VC market is. So it was a hard fall. But I do think the company will be stronger because of it the the world is not 2021. Right? The economy is not 2021 the amount of capital being raised there. In some ways, I wish Hey, maybe what if we had raised at that giant valuations in October, November. But the point you just made under two minutes ago, we spend the rest of our company’s life trying to live up to that two to $5 billion valuation that our peers companies got at this point that we can actually focus on growing surreal. And rather than being a company that posts a huge valuation to then can ever live up to it. Now it’s for the next 10 years, growing into what we hope is a sustainable, very valuable long term company. So it is a thing he for the long term VC capital will always be there. If there’s a fundamentally strong company.
Erasmus Elsner 32:34
Yeah, talking about sustainability. And I mean, just as hard as it is to file these tax credit with firms. It is also hard for companies once you onboard them to switch right. And that’s why you have quite strong course switch. Right, some retention rates must be quite good. And this is really, I think, the first and fundamental basis to get to profitability.
Doug Ludlow 32:56
Yes, that’s right. I think we have best in class what we call best in class, SMB retention, right? It’s if you look at like, your retention for enterprise software, you need to be the 90s to be making money. You know, the average, like retention rates for SMB software’s in like the 40s, or 50s, were much, much higher than that, to your point, because we provide easy value, or its ongoing value is much easier to stay with Main Street, and we’re gonna get you to be much faster, probably much cheaper process
Erasmus Elsner 33:24
than it would have been otherwise. And talk a little bit about the competition, you touched upon some well funded competitors. How is the market heated up? Obviously, once there is a realisation, the market of this great opportunity, you often have a lot of VCs trying to fund competitors. If they can’t get into Main Street. They’re either incubating a competitor, or they’re trying to find someone who’s doing it good enough for other barrel investors to backup.
Doug Ludlow 33:51
So there’s the if you want to look at the competitive space, there’s one we already talked about rd, rd codons or Aussie Council just do it for you without really knowing what they’re doing. Those are dangerous, you shouldn’t use those. But there’s some traditional players. They’ve been around for many years, like Clarus r&d or RDS right? They’ve been around for a while. Then you have startups like both.ai, or do tax or pilot will also do some credits. They’re all good companies founded by good people, I know them all. I wish them all well. This is one of those markets where it’s not necessarily winner take all there could be a few companies in the space. We’re doing well. I think main streets are the largest of them, kind of by far. I think our our differences. We have multiple credits. We’re not just an r&d company, right? What was the reason why we hired a bunch of ex Google engineers to build the product, right? A lot of these other companies have essentially a team of accountants behind the scenes doing most of the work manually, we’re able to eliminate virtually all of that was technology that can very easily add other credits. So it’s much easier to grow and expand and others, hey, if you’re not using us, you shouldn’t use one of these other companies. They’re good companies. I wish
Erasmus Elsner 34:53
them all well. On the vision and sort of the next steps. Obviously, there’s a lot of go to market but it can still Do as it’s sort of this whitespace a lot of people have never even thought about using any service provider to claim those tax credits. But then there’s also this expansion of the of the core product by basically expanding into different other tax credit areas where or segments. And then last but not least, you can help the existing customers to grow in terms of their use of those tax credits. Talk a little bit about some of what’s your top of the mind priority chirp?
Doug Ludlow 35:28
Well, there’s no, there’s no long term, right? I think number of small businesses we serve as is key, I there will be different products will be different product lines, you know, yeah, there’s 36 million small businesses in the US, we’re not going to stop until we’ve helped every single one. So we have a long ways to go there. But when we think about the next 24 months, let’s say the number one thing we focus on, how much credit can we give our customers, right? What is the dollar amount we can we can find them across these multiple programmes. That’s why they’re here. They’re here to get the credit, start or enforce a rallying cry with music. It’s early a lot lately. 100% of companies should get 100% of credit, they’re eligible for no more notice, right? We don’t ever want to be in a position where we’re being unethical and taking way too much, right? We only get people in trouble with the IRS. That’s, that’s priority number one for us. But also want to make sure we’re not leaving money on the table. Right? Companies trust us with their finances. Right. So how can we ensure that we’re getting as many credits as possible, that full value for our customers? I think that’s something I think about quite a bit. Yeah, of course, any business, our position, we worry about customer acquisition and retention, right? CAC, LTV, all the basics. So we track very carefully, I think long term. What I’d like to be able to do is expand beyond tax credits. That may take years, right. But I started as I mentioned, to help my hometown, right, and then a small business, my hometown, actually think about my dad. He’s retired now, but he ran his sole proprietor insurance sales business had been asked out and was never actually that successful, largely because managing the financial stack of a small business was pretty overwhelming a remains pretty awful, right? The thing about my dad and people that millions people like my dad, who think it should have been something that handles their taxes, their banking, their loans, their credit cards, all in one easy to use semi automated service, how amazing for the world would that be? So 10 years from now, I hope to not only nature has been the tax credit company, but we’ve able to build on top that’s really be the small business financial solution will take us a decade to get there, if not longer. That really is the ultimate Northstar of where we want to take this.
Erasmus Elsner 37:24
I’m not sure you qualify yourself as a FinTech or a government tech, or something in between, but it’s definitely dealing with the government is probably one of the hardest and broken legacy systems in terms of infrastructure on their side, right? Oh, absolutely. And we have five minutes on the clock. That’s when most pub s hosts bring up the favourite fives, or the past fives. I’m just gonna let it on itself to to what’s your business book? And what sort of mistakes you as an entrepreneur
Doug Ludlow 37:51
look back? Sure. I mean, I know this is probably cliche by love Blitzscaling by Reed Hoffman, right? If you read it incorrectly, you think it’s he has pedal the metal all the time? No, it’s, it’s understanding when you go as fast as you can catch an opportunity there when you slow down to fix and patch all the holes of what you did to blitzscale. So it’s this dance, aggression and softness when you need it. It’s really fascinating. But the advice I’d give to other operadores is somebody’s help people a lot. It’s avoid the illusion of progress. You know, it’s really easy to stay very busy and fill your calendar with things that are satisfying to check off. But they don’t really matter all that much. I think if so, my earliest companies, the amount of time we spent arguing over where do you want to place the office or the exact shade of blue of the logo, right? It couldn’t have mattered less, right? Instead, every minute you’re spending on something that is extraneous, something you’re not actually moving the company forward. So you always ask yourself, am busy, but am I actually making progress? Or is it just an illusion? So to avoid the illusion of progress,
Erasmus Elsner 38:50
is my elephant VPS or Vice President recently tweeted, don’t mistake activity for achievement? And I think that’s exactly when you were sitting there running against a clock duck, your call to action? Where can people find out more about you about Main Street? How can they take advantage of the offering? Well, hey,
Doug Ludlow 39:06
if you’re a founder or a small business owner, go to main street.com. And give it a try. Worst case, we can’t find any credits. You don’t pay anything. That’s case we find a bunch of credits and it’s almost like found or free money. So it is absolutely worth one minute sign up and then five minutes if there’s something there. If you want to follow me, I’m Doug Ludlow, do ug l u d o w at Twitter. I occasionally say something interesting to most of the time I just posted about my dog or for barbecue or something. But yeah, that’s about me. If you’re ever in San Jose semis, we’d all get together.
Erasmus Elsner 39:35
Yeah, I love those pictures of your dog. Exactly. Thanks a lot for taking the time and walking us through the story from Main Street to hip surgery to everything in between. And I really wish you all the best and fingers crossed.
Doug Ludlow 39:48
Thank you so much. I really appreciated the chance to be on the show. Thank you so much.