Better Accounting = $$ = Growth (Daniel of Bags)

Speaker A: Super, super excited for this one.

Speaker B: Daniel Taylor, Happy to be here.

Speaker A: Founder, CEO of Bags. Securebags.com, by the way, is one of my favorite domain names. Like when I saw that I said, okay, this is gonna be a fun conversation. Um, you have to have a certain level of understanding of startups, domain theory and culture to be okay having that domain. M and I think it's awesome. Is bags.com taken by anybody?

Speaker B: I actually just got an email saying that bags.com is for sale and the asking price was 1.7 million. We do all bags AI though.

Speaker A: Okay.

Speaker B: Uh, which is interesting and good, but Honestly, I think securebags.com is like the right level of descriptor, meets brand name, meets authenticity. And with the secure component, it helps a little bit with uh, SEO because just bags.

Speaker A: Yeah.

Speaker B: Ah, you're fighting against Coach and all the other like bag companies. Yeah, Bags as it relates to money. Yeah, that's, that's us.

Speaker A: Well, it's uh, it's funny you mentioned the price tag on bags.com. i still remember. Do you know the Clubhouse domain story?

Speaker B: No.

Speaker A: So for those who don't remember, Clubhouse was an app that was hot for a second during COVID A typical grift. We'll get into it. Anyway, so, um, interesting startup and then what winds up happening is clubhouse.com is owned by a startup at the time doing task management. So Clubhouse is now called. It's a quite popular task management tool nowadays, uh, amongst engineering teams. Oh good. I'm forgetting what they changed their name to. So anyway, this is a sister company of one of our investors. So I know the founder as this is happening and accnz at the time and the Clubhouse app, uh, want the dot com because at the height. And so they wound up selling it and in the press it was reported as like, oh, uh, a significant dollar amount was exchanged and actually probably from accnz, not from the startup because it needed to be that significant. So eventually I see the founder and I go like, okay, how much was it? He goes, I can't share it. And I go, come on. He goes, a series A amount of money.

Speaker B: Oh shit.

Speaker A: A series A amount. And this is by the way, like 2021, 2022. So that's like legitimately anywhere from 10 to $30 million.

Speaker B: Listen, people say we go, if you were to go back in time, like what would you do? You buy Bitcoin? No, I would buy four letter domains, just all simple domains. I would buy them all for literally $5, $10. That's enough.

Speaker A: It's uh, one of the things that I think about, the advice that I give founders and Securebags again is great on this notion is securing a domain that is legible and clean and a absolutely key need it. Um, but let's get into bags. I'm super excited for this one. Let me begin by asking, you know, let's zoom in before we zoom um out. We'll get high level but at a low level what is the company today? And I'll say, you know, in the context too of there's a lot of accounting SaaS out there.

Speaker B: Yep.

Speaker A: There's the pilots, the, there's the formerly benches of the world. Then there's stuff like um, we actually did founders Friday with Haven. So there's some smaller service accounting startups and you probably fit in one of these buckets, largely speaking, and then have kind of unique value props. So maybe not only what are you in a vacuum, but what are you in relationship to maybe what people might understand in the market.

Speaker B: Absolutely. So the way we describes, describe BAGS is our financial growth platform, helping businesses manage money, borrow money and spend money better. Most sort of financial management platforms really focus on the manage money piece. Right. A few incorporate FP and A, which is the spend money component. And very few if not none actually have the borrow money component.

Speaker A: Mhm.

Speaker B: Which is interesting because as we, we made a pivot about 18 months ago towards this business model and as we did so we were still at the time very focused on just access, access to capital. And all the other players in our space started calling us saying, wait, our businesses need access to capital, right? Can you provide that to us? And we were like, yes, but by the way, like just want to be upfront here. We might be encroaching on the same space we have. We are very, very good at the assets capital component, but we think the future and what we found specifically with SM is that in order for them to succeed, they need to know their numbers, they need access to working capital, meaning they need to know how to fuel and fund their growth and they need to know where to spend their limited time and resources, specifically money and time. And so that's really how BAGS has approached the market, which is we want to build a better platform for businesses to fund their growth and grow holistically. And so we want to cover all three of those things and that's how we differentiate ourselves within the uh, sort of broader scope. Because if you look at really the optionality for most businesses, finaloop is another one who's in our space and they're very specific to E commerce. Right. The solutions are QuickBooks, Flow Something. Flow, yeah, Flow FM.

Speaker A: Yeah.

Speaker B: There's a couple others. My pocket CFO is another. And really sort of the scope of optionality for businesses are there's QuickBooks, which is really a platform that's built for accountants to service businesses.

Speaker A: Right, Right.

Speaker B: So it's not built for businesses.

Speaker A: Right.

Speaker B: And our platform, by the way, has a QuickBooks API. So we actually interface with QuickBooks as a core infrastructure. Then there's sort of this middle space where you've got various tooling as it relates to AI. AI for bookkeeping and accounting. Right. Where they're trying to replace the bookkeeper.

Speaker A: This is like part of Ramp's value proposition.

Speaker B: Part of Ramp's value proposition. Runway, uh, Runway is another. But finaloop is probably the one who titles itself the most as this, which is we are AI for accounting and we're going to reconcile queries faster. But the problem is from an AI perspective is it's still only 85, 90% correct from an expense categorization standpoint. So you still need humans. Right, Right. So we are also, we have service providers for accountants. Um, then you get into the pilot and bench sphere where really, where you look at how they make their money is the fractional CFO work.

Speaker A: Right, Right, right.

Speaker B: So that gets you in the, let's call it, the floor is about $5,000 a month. Most are between eight and a half to 15.

Speaker A: Wow.

Speaker B: For fractional CFO. And embedded in that cost is the financial management component. Right, right. And so for most SM start generating maybe a few million dollars a year, then they can really afford to get a fractional cfo. But still they're, they need someone to do the financial management. They need someone who understands access to working capital. Um, they need real time FP&A. Without needing to call a fractional CFO to get that work.

Speaker A: Right.

Speaker B: And so where we're really trying to call carve out our niche is like if we can give every business an understanding of how to use that as a tool for growth, a fractional CFO for less than $100 a month right in their pocket. Right. And then a really reliable and structured way to get their books managed and manage some of the other sort of financial management components, whether it be bill pay, payroll, etc. We're going to take on that work. And for us as a business model is if we own how you manage your money and you find money and uh, how you spend your money for us, you'll never leave. But in reality, the Space is so large that like we can win. Fenloop can win, Bench can win, Pilot can win. Old Bench didn't win, but Pilot can win. There's 30 million businesses doing under $10 million a year. There's a lot of businesses.

Speaker A: That's not the problem. Let's get into that portion of it because I think this is what's so interesting. You did a great painting of the landscape there. There are so many subsector businesses in this when you think about your value prop and it's super interesting. I like the three pillars as a whole. Who most benefits from your product today? Because a venture backed startup can benefit from this stuff. A local mom and pop can benefit somebody building a lifestyle. Business can benefit the new. Hopefully not as many people uh, will take venture when they don't need to. Business can benefit. Whose I for you?

Speaker B: So, so I would say that we, we, we definitely get a lot of businesses who realize that they can't raise venture and are building just a good business.

Speaker A: Right.

Speaker B: And, and to be honest, for us, especially given the broader venture environment, like I think the script is getting rewritten in regards to where smart and talented people are allocating their time to build businesses. And so for us, our sort of core target customer are three power categories. Service based businesses, cpg. Right. Especially in an environment where CPG within venture is completely, almost fully withdrawn. And then of course retail related businesses. Right. That's everything from a coffee shop to a restaurant, you name it. Sort of your more classical retail related SMB. We started to get more inbound from a venture backed perspective to your point, like we are applicable in that space. But the reason why those three power categories work really really well for us is because all three, in order to continue to succeed and grow, right. Eventually reach a growth ceiling that is limited by working capital access. Right. Because of the cash flow components of their business. They hit a cash conversion cycle crunch. They need working capital in order to get right. Like if you're a CBG brand and you're going from you know, one retailer in 50 stores to 500, you are

Speaker A: so much more like a business I didn't think of as an analogy. Do you know Neha at uh, uh, Bonsai?

Speaker B: Not well. Uh, of course, of course, of course.

Speaker A: Yeah. It's so funny. Of course. So I didn't think a lot about the analogy here because you guys are getting positioned very differently but for, for everyone else's sake. Interesting. So bond side, uh, the whole uh, core value proposition is working capital but they're funding the Deals. I don't know how you're funding.

Speaker B: We're not funding the deals.

Speaker A: So.

Speaker B: So we work with a bond side like alternative. Right. So, so our whole thing as well as you know, we don't want to be a lender, we don't want to be a bank.

Speaker A: Right? Right.

Speaker B: We don't want to hold the credit risk one because we as a team aren't built for that. Right. You need a certain level of team capital infrastructure in order to be a lender or a bank or a bank interface. And for us the scope of the problem, we've got about $12 billion of AUM, UM available.

Speaker A: Right.

Speaker B: 60 different lenders, 100 plus different financial products. So what we found is you need capital from um, a bond side.

Speaker A: Right.

Speaker B: You need a capital from a lender street, you need. And that capital need changes over time who the lender is. So for us it's, it's more for us to solve the problem. If we were to be a lender, we need to raise $10 billion and have hundreds of financial products. We're not going to do that.

Speaker A: The interesting thing though is, is you're still hitting the same moment because I think a lot of their value prop, a lot of their working theory is somebody is to their third or fourth retail location and that's the moment at which they get in. And then there's this interesting component. You position it very similarly to how she does, which is it's at this point that a business most needs to mature because when they're going to third or fourth location, their books look like garbage. And one of the insights about her business that I didn't realize. We're sitting and I'm talking to her about the future at a Founders Friday course like this and she says something like the first thing they have to do to apply for M. Bonsai is submit everything and we help them clean it up. And whether or not we decide to underwrite the deal and give them capital is a different story. But we help them clean up if we decide to do the deal. They now have clean books and a clean infrastructure with which to go forward.

Speaker B: Correct.

Speaker A: So you are not just. And um, it's interesting. I'd love to hear about how you think about what altitude you decide to get involved in and out. Of course. But you're not just a toolkit. You are a theory of how to do business or how to uh, do businesses. Maybe strong, but how to handle your books.

Speaker B: Without a doubt. Exactly. And we're doing it within the lens of growing your Business funding your business. Right, which is really the key, right? Because for most businesses, like before we made this pivot, we can talk about that experience. But before we made this pivot, we were just doing the lending component and we realized that in order to do the lending component better, we needed to do the book cleanup. Right. Like similar thought process. But even still, the real name of the game is not just we cleaned up books, we got you access to capital. Good luck. It's wait, we cleaned up your books, we got you access capital. Now you need infrastructure to manage, right. Debt. Right now you didn't need infrastructure to refinance that debt. Now we want to make sure that you didn't just take on that bond side or term loan or PO or air financing and then go take out an mca, right, a month later. Right. Because you weren't aware of the other options that are available or you weren't managing your cash flows appropriately. So in order for that business to be successful, it's really the after. Right? Like it's about building a longer term debt strategy and like we think of ourselves as that strategic layer.

Speaker A: I love this. Two fundamental reasons. First is so many, this goes to one of your overall themes here, like what are you expert at as a founder? And a lot of people are not expert at capital management and the understanding even of what they have as their options as capital. I mean how many by the way, if we're talking about venture, like venture debt is something that's burning people's hands right now. And like there's just a lack of, it's like you get advice from somebody on that journey of okay, how should you go get capital and how should you think about capital as infrastructure? So that's like one of the things that I think is so interesting is to your point, the after the hard problem for the founder is do I know what to do? Um, do I know how to invest in my business? The second reason this is so interesting to me is the moment in time we're in obviously is seeking healthier businesses, seeking uh, uh, a, uh, more diligent approach. And so it goes. But it adds an incentive and again bonsai similar conversation is happening here where the realization in my head was oh, my books are terrible. Why? Because I have no incentive. I don't care, I'm not planning to raise more venture. Uh, they're just awful and you're never going to get me to fix them. Now if I needed capital then there's an incentive and if someone's going to go, hey, I have Access to capital. I have methods to help you access capital. We have to go through this process first. It's a great forcing function, without a doubt. Do you find 100% of the businesses who you work with start at a very low point in, uh, terms of how they're doing their bookkeeping? And like, are we in a world where most small businesses, I mean, and I don't, you know, the default answer to this is obviously yes, but I guess I'm asking, like, you see so much inside of it. How bad is the problem of this is pervasive.

Speaker B: So I'd say there's probably three types of businesses that come to our door. There is one type of business who's basically like, hey, I only need to do this because I want access to capital. And I've tried to get access and I've realized that that is the limiter and I'm just going to do this in order to update it so that business, what they need is they need a, hey, not only do we need to do this to get you access capital, but like, here's how you can start making better decisions about your business growth. Right? Like, there's a podcast, whether you're a fan of it, him or not. Alex Hermosi has a podcast and how he describes finances. Like, finance is information to make business growth decisions. It's just information to make better decisions. So if you have good finance, you can make better decisions. But to your other point, the other two archetypes of the businesses who come to our door, like, want financial, better financial management because they need to make better decisions. And then the third is, hey, like, my books are clean. I've got the thing. I hate my bookkeeper. M. There's an overwhelming feeling, honestly, like, we ran an ad that said, like, most, like accounting firms or small businesses suck. Like just that. And the amount of flow and demand. Everyone's like, I agree. Yeah, yeah, people usually hate their account.

Speaker A: Why is that?

Speaker B: There's two parts. Most accounting firms, especially if you think about the localized one for SMBs and, and even some of the larger ones that have been mentioned, they're actually in the business of making money on taxes.

Speaker A: Right?

Speaker B: They're not in the business of financial management.

Speaker A: Right. They're waiting for April.

Speaker B: They, they. And in reality, you pay for the monthly bookkeeping. But most businesses, to your point, don't follow up.

Speaker A: Right?

Speaker B: So it's all margin.

Speaker A: Right? Right, Right, right.

Speaker B: So for the three months, you did nothing, I did nothing. That's margin.

Speaker A: Right. Great.

Speaker B: I'm going to collect the cash. And then when it's quarterly tax season, annualized taxes and etc. Great. You're going to call me, I'm going to do the work.

Speaker A: Yeah.

Speaker B: Which is just embedded into making money on tax. So that's the first. So most businesses feel as though they're paying for something and they're getting no return in real time because their accountant isn't being proactive. And in reality for most of those accounting firms, they don't have incentive to m. Right. So that's the first piece. The second is, I think part of the, you know, most, a lot of our businesses are let's say doing half a million dollars to let's say 10, but most between half a million dollars and five. Right. And they're getting that point where they have teammates, they're paying more bills.

Speaker A: Right, right.

Speaker B: Their expenses are growing. They think in reality this is what happens for most people. They're like, great, we made more money than we spent last month. And then three months later they look at the numbers and they're like, wait

Speaker A: a second, what changed?

Speaker B: What, how, how did we, who did we. I don't understand. And this isn't even recorded as revenue on my, on my books. I like. So they're playing the catch up because they're realizing that they're actually behind and they have less Runway than they think. And so for a lot of reasons, I think a lot of businesses are waking up to the fact that like in reality the key to success is actually embedded in financial management and good financial decisions. Um, and I think for us, like our proof point to your point of like incentive to use a bag is yeah, come to us if you want to get access to better money. But actually it's, hey, businesses on average on bags are 250% year over year. That's the average business. Our top quartile grows 600% year over year. Right. So what we're, our whole thing is like, hey, if you really want to grow your business and get from you know, 500 to 5 or a million to 10 or whatever that ratio is, the path is actually in both access to money and financial management. That's the recipe for success.

Speaker A: You know, it's funny because there's like two theories of the world as to why people don't take that on. Because what you're really saying is it's a lot of ways, coaching and boundaries. It's like the thing that it is, uh, as a product. And I think the two theories of the world is why this hasn't taken off the first has to do with the incentive problem, but it goes down to also, like I often tell people when they think something's a good idea and it's not happening, but it's like, why not? Like, why isn't a founder? You know, we coach a lot of folks in the job search trauma. So, uh, when I talk to UX people, this comes up a lot. Where I go, like, like you are an optional functional area and you need to think about talking to CEOs. If you're interviewing founders at startups, you have to remember, you have to convince them you're necessary. And at first they'll take a little bit of offense to this. And I go, you realize I can do this without you. A product person can do ux, a CEO can do ux. And the reality of businesses, they're so messy that like, there's a lot of low hanging fruit. I'm doing a lot of things wrong every day. So should I deal with the 17 thing I'm doing wrong on the list, or am I okay living in one to three? And so something can be number 17, my books can be number 17 or my UX can be number 17. Because so much exists as low hanging fruit for a business to tackle any given day. So I think that really is pervasive. The second is, I guess, and this is where I'd love to hear about from a product perspective and a service perspective, how you deal with it is how do you know if you do go seek financial management, if you do go seek a vendor, if you do go seek someone to bring onto your own team at some point, how do you know they're right? And so how do you, for example, drive this from a product perspective and a service perspective? Maybe, uh, it's just more obvious and it's about just putting a thousand small pieces together. But when you're thinking about you drive the 250% growth, the top quartile doing so much growth, is it you going, here's a bunch of obvious stuff and guardrails, or is there more to it than that?

Speaker B: So our product development philosophy, actually, you know, we made pivot 20, 20, 23 fall, sort of winter, and we were like, all right, let's sort of move fast into this. Which was a risk, right? From our Runway perspective, is it going to work from a whole thing? And I remember calling our lead investor Slossonico at the time, being like, hey, here are projections. We're going to get to half a million dollars in ARR in the next like four or five months.

Speaker A: Yeah.

Speaker B: And they were like, if you do that, we're going to write you another.

Speaker A: Yeah, yeah. Classic.

Speaker B: Yeah. They're like, go for it. And I didn't say that we were going to have half a million dollars in SaaS revenue.

Speaker A: Right, right.

Speaker B: I said we're going to have half a million dollars in subscriptions.

Speaker A: Right.

Speaker B: So for us it was let's just go do the thing um, as manually and as non technical as possible. So we spent, we hired a third party accounting firm overseas, embedded them into our experience and started selling the thing.

Speaker A: Yeah.

Speaker B: And just started doing the work.

Speaker A: Yeah.

Speaker B: And by doing the work and we, we didn't like if you would ask me when we started BAGS if we would have been an accounting company, I would have said you're crazy. But we started because our mission was always to uh, increase business growth. Like so we just started doing the work. And by doing it over the last 12 months, and we've since transitioned from external accountants to internal, we got rid of our entire engineering team, hired a completely new engineering team because like we needed before we were really focused on data and lending and like our CTO was very data oriented, great guy, but just not the product builder. And even because we're dealing with SMPs, it's somewhat consumer.

Speaker A: Right.

Speaker B: Like it's, these are small businesses, individuals. So what we did is we basically did the work manually and then built product based off of the manual work as people were paying us to do that work. Right. And so that honestly I think that's been the recipe for our success thus far has just been like we're only building the things we know are necessary for businesses because we literally did it in Excel for them.

Speaker A: Two sub things about this that I love. You know, the first is so many people need to learn about doing this. You know, the theory of the MVP is over baked as in like building a digital thing that is like the minimal viable. But the theory of doing it over email underrated.

Speaker B: Sell this thing.

Speaker A: Yes. My first startup was a job search tracker. Wasn't financially successful but we had over 100,000 people use it back in like 2014 when job search trackers weren't a thing. And the reason we got to it, we had built a bunch of job search recruiting products for a couple of years, me and my two co founders and they were middling working and we're like, okay, what can we build in this space? We've learned a lot, let's just go find 100 job seekers on Reddit. And for a month we'll do whatever they need for us to do. So we wrote their resumes, we like interview coached them. We did this, we did that. And the thing we said, okay, common amongst all of them, they all loved that we started to track their job Chantrello and so why don't we just rebuild this thing. And the insights that you get are so flexible in that moment because to the MVP's problem is it forces you to make some early bets that might be wrong versus doing it over email or doing it over spreadsheet. Hiring that firm is a brilliant move on your part because you go, I'm not committing to a theory yet. I'm going to just serve you as much as possible. Learn the theory. The second thing about this, and this is I think an overall mentality that is kind of pervasive in the Valley. But some people who are in the know really know it. A lot of businesses, a lot more than people think make most of their revenue or a lot of their revenue on services or tech enabled services. So people will fear it because it is true. It's hard to get early funding for a service tech enabled services business. It's hard to scale and that might be changing with AI and other stuff. But the reality is if you look at even B2B enterprise SaaS companies, a lot of them m, a lot of their revenue is going to come from their services portion of their business and people just, just can't I think get over the fact that that feels more manual than oh, I get to like put up a WYSIWYG CRUD act and just like make money.

Speaker B: Correct.

Speaker A: But you know again I think underrated in a lot of businesses is the service component. So then let's get into you know, kind of some meta themes around this. I love where we're headed. I want to, I'm just going to say uh, um, a name of a company and I want to hear your perspective on the story. Okay. Bench. Yes. Well, I'll say a little bit more. Um, for those who don't know this accounting SaaS startup that bookkeepers are that was competing with Pilot I think is like the prim of course and is a venture story in that it seemed to have some sort of either venture debt related or just projection related crunch. Then in like uh, a moment in time sent out an email to their customers being like we're going out of business, good luck. Then kind of got bought for pieces. I don't even remember by who. And so like there's a venture story there, there's I'm thinking ah, ah accounting and bookkeeping story there. Tell um us Benj from your perspective as an expert.

Speaker B: Yeah. So um, without, without being internal at bench. Right. Because obviously I can only understand what we see from an inbound perspective from. Because we were getting businesses coming from bench prior.

Speaker A: Right.

Speaker B: And to the theme of most people hate their accountant. Right. Like the simple thing of books getting delivered on time, good communication, good client success like wasn't happening there. We saw the writing on the wall of that sort of, sort of early on. There's an element of scaling and this is the reality of venture, especially the reality of venture over the last 10 years, especially the last five. Right. Where as you raise significantly more money there's an expectation of a continued element of growth at a multiple.

Speaker A: Right.

Speaker B: Not growth either. Grew 30 year over year 2x3x5x etc and so as your business continues to grow and scale specifically thinking about the constraints of tech enabled services. Right. Like, like and they've raised a very significant amount of money. And so I think from my under. From the way I would see it and, and you know and, and I so I, I sold my, my last business and so I've been through an acquisition process. I, I think it is very likely that part of. Because all we do as as uh CEOs and boards, et cetera is you know, essentially manage the business. But like scenario plan.

Speaker A: Right, right.

Speaker B: And so it seems like there was a scenario that was planned out whether that be from a credit perspective or from an equity investment perspective. Right. Where they were expecting a deal to come through in order to help them continue to grow and scale their business or stay alive or sell. And clearly that didn't happen. And especially in a current market where there's a sort of IPO that the tap on IPO let's say is a little bit more closed. So everyone who's in that, you know, 750 million to multiple billions valuation is getting crushed down and down and down and down and down. And so for them like the out of the. Because literally it was day two days after Christmas, hey, we are shutting down as effective as of today. You have 30 days to get your numbers.

Speaker A: Good luck.

Speaker B: That was the. No.

Speaker A: Yep.

Speaker B: Right. Wild. And you're talking about 45,000 businesses. Right. And many of them, not just small businesses, venture back businesses. Right, right. And, and so I think it's a case of combination of growth at any scale and a planning and scenario that put them in a corner and it didn't go through. And listen, I honestly I feel for the founders and feel for the team and a deal was done. I think part of the problem and this is when we think about our growth stage is like if what you're really selling and where you're making your money from a service perspective is the sort of additional advisory work.

Speaker A: Mhm.

Speaker B: Right. Um, which is the fractional CFO component of things. Right. And especially in a market where if you're targeting 10 to 30 million dollars a year businesses where there's compression, right. Meaning people are raising less venture etc, anyone who's going after like you know, the larger growth stage SaaS to provide them factual CFO work and custom XYZ and you're scaling like that's a really hard thing to do if the market compresses the valuations of those companies and there's less liquidity. So they cut budgets and where do they cut budgets from places like Source. And so like our sort of learning lesson from that as a business is, is one, like we are never going to get into the fractional CMO space. One, two, we aren't building for growth stage venture and growth stage SaaS.

Speaker A: Right.

Speaker B: Like we don't want to touch it, we're not interested. Not even interesting people would say that it's actually less volatile than going after SMBs because SMBs go out of businesses. Right. Like they want to go after. Right. So well capitalized, half Runway, et cetera. And in the theme of skating where the puck is going like, like, like there's so many SMBs and people. I, I honestly think like people went upstream and then in reality like sort of left every business that's under sort of that, that $10 million. So we want to focus there. We think especially with the sort of current AI infrastructure that exists like we think we can provide maybe not 100% of what a fractional CFO can do custom wise, but from a timing perspective we can provide even if it's 75 or 60% of the value, quite literally 1 50th of the cost. Right. Um, and have it really be trained and custom to your data in a way that's tangible and ready for you. With industry wide metrics and all the other things that we have, we can be as valuable as what bench was from a fractional CFO perspective to all of our small businesses and have actually a higher ROI of that work per business than they're having on some of these larger businesses and in turn by doing so not have to try to scale out a full tech enabled service business and our whole Sort of methodology is is and our, my co founder Ignacio, he was, he was at um ah a neo bank called Monzo in the UK helped scale their internal service team from you know a couple hundred people to thousands. Um went from non bank license to bank alliances right like they're and his whole entire M.O. there was just like how do we increase capacity and outputs per service person through product and for bags now we've built the customer in first uh the SMB interface in a way that's incredibly good. Now it's just all right we've got six internal accountants. I sweet will probably end the year with 2025 but if we're going to 5x8x revenue whatever that number is actually want the ratio or sort of total ARR per accountant to double or triple because we're doing such great work with the infrastructure that we have and the product.

Speaker A: It's a new theory of tech enabled services because uh, you know so free agency. I don't know if we've talked about this in a recorded format so this will be the first time this like is a story that I tell on the YouTube channel. We as a startup venture back to ourselves. Tech enabled services how it's our presentation. So a job seeker gets a talent agent um and the talent agent runs their job search. The person is mid to C level in tech tech and their only obligation is to interview. And so lots of concierge service in that really deep relationship with the customer pays us 10% of their income once they get a new job from 2019 to 2023. Fantastic business uh variety of headwinds hits uh we are no longer primarily in that exact business model. But the reason that business model would have worked and was working until the job market changed. The job market changing meant our time to placement extended so long that our cost of service went too far up. But the whole theory was exactly this and I think when I was asked by venture how are you going to enable tech enabled services? I go I'm a product person by background. I'm going to take that seriously. And so we built and I hope one day the market changes or I can give this to other people to run. We built an infrastructure and a uh whole operating system called Desk Jockey that was giving uh a talent an ability to hold more clients, provide more value. But it wasn't taken labeled services. Most founders who say that you then look behind the hood and it's really a service provider and it wasn't really tech enabled services most of the time I talked to founders who are in the space versus taking it very seriously says how do I truly take a service provider, a uh, talent agent in my case, an accountant in your case and say let me toss true efficiency which means you have to take seriously becoming an expert in that person's business. Uh, whereas most tech enabled founders that I think gave tech enabled services a bad rap in VC were just wrapping it in some sort of software ui. And that is a mistake that I think again a founder should be expert such that they understand so deeply what the person is doing. And especially in the age of AI. I think maybe that's the one thing that is true is we needed this moment to have a step change in how possible the tech enabled services being so product oriented can be because now you can take that individual. I'm assuming you're probably in your, you made this pivot in 2018, you said Y. So maybe you already knew because some of the LLMs are out there. But like if you had built this right before LLMs, right after you're talking probably like a 10x increase in what you think think possible.

Speaker B: And I mean it's. And to the point. It's, it's from a possibilities perspective. It's compounding you know, quarterly.

Speaker A: Right, right. Like 4.5 last night.

Speaker B: Quite quite literally. Quite quite literally. Um, and, and we're very modular in terms of the alums that we have access to and, and really like so that we can go towards whichever is best within the system or the structure or the agent that we need it to be for. But you know it's funny, after benchmarking January there's a big article, uh, general catalyst A6Z. Everyone's like we are back. We believe the future of uh, accounting is an AI. We're going to start buying up accounting businesses all over the.

Speaker A: Oh wait, they're doing it right out of their funds.

Speaker B: Out of their funds. So they're literally buying services. They're literally buying. So to your point, there's a shift.

Speaker A: I forgot about that.

Speaker B: Yeah, there's a shift happening which is, which is. But, but again the, the and I know I have a call a friend um, who has raised, raised $50 million to go do this exact thing uh, in accounting. Like, like same and I, but they're

Speaker A: just going to take the approach of uh, like entirely AI on top of a bunch of roll ups.

Speaker B: Is that like that, that's, that's the approach.

Speaker A: I, I think they'll wind up being your customer.

Speaker B: They'll wind up being a customer.

Speaker A: You're gonna Come with like a package of a uh, thousand clients they've bought through these small businesses and come to you.

Speaker B: Correct. And, and, and, and I, and exactly. And, and I also think there are nuances. We've looked at this like, we've talked to firms to buy and like we've gotten into the like under the hood

Speaker A: and like, like, and by the way, let's, let's reclarify for the room and for, for YouTube. So this is General Cattle and a couple other venture capital firms going. We're literally going to make a PE style strategy play. They're not calling it pe I think, but they're going on buying midsize and small accounting firms and doing Roblox.

Speaker B: Who's Correct. Who's you know, individuals own it is who's owned it is retiring.

Speaker A: Right.

Speaker B: Like we even, we get inbound all the time. We have an ad running next week centered around hey, if your accountant just retired, call us.

Speaker A: Like Right, right.

Speaker B: That sort of stuff. There are so many across the US who are. But again, here's the thing. They make their money on taxes.

Speaker A: Right.

Speaker B: Again, you can make a lot of money in the tax base. Um, most of them are super personal from a relationships perspective, which is a hard thing from a private equity standpoint if you're not going to retain talent. There's a darth of CPA talent in the US Right. Which is a hard part about it. Right. Um, and we've got a couple in the US but a lot overseas. And the town overseas is really good.

Speaker A: Right?

Speaker B: Really, really, really good. And so you know, we think what'll happen is they'll do it, it, they'll turn immediately. But if they don't actually have the like client management infrastructure and all those things at the end of the day, like in our space, it's half of it is expectation setting. Like we just put out a feature set that is real time notifications for every single piece of work your accountant does. Right, right. So that you're getting an email every three days being like, this person's working, this person's working, this person's working. Like nuances like that.

Speaker A: Well, and the other element. So I'm, you know, I, I, I'm going to use again, um, another founder that I talked about this like, is Haven a direct competitor?

Speaker B: Ish. Uh, yes.

Speaker A: But all of you can succeed.

Speaker B: Yes. And agreed, literally everyone.

Speaker A: So Cyrus was here a couple months ago and the thing that he said that was interesting was also so much he was saying exactly what you're saying. And the thing he said too was so much of the value, when the value is being executed on and perceived is in moments that matter is the way I put it in my business. I remember what you said. But when things go wrong, in other words, the edge cases that matter, it's the only time it matters. Otherwise, to your point, you're either not talking to them or whatever. And so if accnz, ah or General Catalyst are rolling these people up, like do they have the right CPA so that when client 742 actually needs value in whatever month it's in because something is going left and needs expertise, they're going to struggle with that.

Speaker B: Yep. Correct.

Speaker A: Interesting. Okay. Um, I could live in this topic forever. Let's do another one. The other portion of your business, from my perspective, you know, digesting as an outsider that seems really important to you, um, is serving this to underrepresented businesses, founders, uh, executive teams. Let me start there, ask some sub questions. But you know, obviously there's, or uh, I think it's obvious there's virtue to that. But what did you see as a business opportunity there and B philosophical opportunity there to serve these businesses?

Speaker B: Without a doubt. We, you know, we, I, I, my co founders and I started this business, this with a, you know, honestly, my personal motivation was specifically thinking about black small business owners, um, post George Floyd, uh, you know, seeing all the broader corporate statements, many of which have since obviously been rescinded and the capital commitments, et cetera. And so I saw the writing on the wall there that um, that wouldn't. If that's what our community is relying on to reinvest in ourselves. Like we're going to lose, right? We're going to continue to be behind. And so an initial motivation for me was how do I build something to help, help, you know, black small business owners, right, who create jobs in their community, who generate wealth in their community, who reinvest capital in their communities and really sort of they are the small businesses that, that keep these communities together. Like how do I help them grow? And you know. M. Ignacio, Latino business owner. Um, sorry. Um, my co founder, Ignacio, uh, he's Ecuadorian. His dad's a small business owner. Right. William, my other co founder, his dad's a small business owner. Right. And so we all, my dad was, was a, was a founder as well. We all come from this background of weight. Like small business is an incredible path. And so that's always been the sort of mission on the wall is, is we want to build something specifically for that community. And then the other Sort of underpinning motivation was like I wanted to prove that lending to underrepresented business owners wasn't and we can talk about DEI uh in the current environment wasn't, didn't need to be done because it's, it's a good thing, it's charity. I wanted to prove that it was good business. There's an market opportunity in these businesses and that is really what's been our sort of real North Star is hey, like this isn't about. No, this is about an asset class within small businesses more broadly that actually can generate really good returns. And if I can prove that and give the data, which is why partly because financial management now gives us a shit ton more data. If I can prove that in the data this is good business. We can further incentivize the banking institution, institutional LPs, et cetera, the capital markets to look at sort of the below middle market small businesses as an asset class and opportunity. And so that's always been a core mission. And we just came out with an impact report which um, uh, sort of really describes our core findings. And we did the analysis and we were like holy crap, is this True? And across 5,000 businesses from a wide array of diversity, uh, from an ethnicity, people of color, geography, race, gender, sexual orientation, veteran, disabled. We found specifically when analyzing black owned businesses within the segment compared to white male owned businesses that these businesses actually black owned businesses are, are more profitable on average. White male owned businesses actually aren't profitable. Black owned um, businesses are 30% EBITDA margins on average but by necessity. And they have healthier balance sheets than those than white owned male owned businesses but they have less credit access than those businesses because their personal credit score is lower. And so the underpinning storyline there is that for most businesses within our specifically the black community our are starting their business on a credit card because that's their access. It's easier to get $50,000 worth of credit credit card debt than $50,000 worth of small business loans. They start on a credit card, max out their credit cards, build a business that's actually profitable because the only way they can fund it is via profit.

Speaker A: I want you to zoom in on that a little bit. You said it because you said by necessity. Right. So to your point, you know I just like want to rant so badly. Um, the lack of access to capital and the systemic inability to access that capital has forced the, this set of entrepreneurs to be a, to take on more uh, personal risk first of all to begin their businesses. But b To build healthier businesses as a result. Because that is the only way for them to succeed.

Speaker B: Yep. That is fundamentally the only pathway for growth for them. And but because of that, because they hurt their personal credit. The main reason why they can't get a small business loan is because small business lending ecosystem starts on the personal side. That's the barometer to entry. And so uh, if you go to

Speaker A: venture capital now that all of them are relevant to it, then it's about who you know. Oh great.

Speaker B: Correct. Right. So, so, so and then when you apply it to tech. Right. When in reality the strongest indicator for access to capital is the zip code you grew up in.

Speaker A: Right.

Speaker B: It's literally where you grew up.

Speaker A: Right, right.

Speaker B: And so if you don't have that access to capital. Well your barometer for you be able to build a venture backed businesses or even get started.

Speaker A: Did.

Speaker B: Right. And even if I think about my journey, I had access to capital. That's really what motivated me to go down this path. I said wait, like what is what underpinned and gave me the ability to pursue entrepreneurship? Access capital.

Speaker A: Right.

Speaker B: Period.

Speaker A: How did you have access capital?

Speaker B: Uh, came from an area to the point of zip code that was very well off.

Speaker A: Yeah.

Speaker B: Um, my parents like themselves had incredible careers. They were helpful in that access. And then my co founder's dad wrote a big check.

Speaker A: And then you realized at some point as you went into the world, um, and you know, family of immigrants, of course you go through, through this journey and I'm um, building career startup. You know, it's the asymmetric information that you have access to you realize is so trivial. Yeah. It's just the fact you had some information, maybe a little bit of literal access and you go hold on. That is literally holding people back.

Speaker B: That stops them from even getting to the starting line. But what I think is so incredible about the broader specifically when you talk about the immigrant community or the black community or the Latino Hispanic community. Right. Like is that there is still, even with all that, that so much initiative for business owners to just figure it out to build something to be able to pay themselves a salary and hire people like it's there, we're doing it.