What I'm building next
leaving Capital, discovering problems, building conviction, and taking an idea from -1 to 0.
I left my job as Head of Growth at Capital (fka Party Round) with no idea what I wanted to do next. I didn’t know it at the time but this was the beginning of several months of soul searching, hard work, and immense uncertainty.
I’d burn through a significant chunk of my life savings. Start one company, get traction… just to pull the plug because obsession pulled me to something else. I’d learn about esoteric problems and industries. Discover customers I love. Recruit a dream co-founder and team. Raise money from investors I admire. Begin what’s been the most fulfilling work of my life to date.
And learn a lot about myself in the process.
Some of you read my last post charting my personal origin story. Today’s post charts the origins of our new company and the journey to date in building it.
Going forward, we’ll be publishing more regularly about the journey, what we’re working on, etc.
Seeking conviction
I took a few weeks off after Capital. To reflect, recharge, and make sure I was centered before starting the search for what was next. One of our investors recently asked me what I learned from this “period of meditating on the mountain top” (sadly this is a metaphor and I did not meditate on any mountain tops).
The truth is I knew almost immediately what I wanted - no - had to do.
On a long evening phone call pacing in my Brooklyn apartment, my friend Cameron asked me “what was next?”
My answer, “start a company.”
No hesitation. No doubt. Only clarity.
I was ready. Few founders talk about what it really means to be ready to take the leap. Doing so is an inherently personal decision. So I’ll just share my own reasons.
What being “ready” looked like for me
Financial savings – Over the previous year I had saved ~18 months of personal financial runway. (there were no trust funds involved in the making of this company or blog post)
Health – Physically, I was coming off multiple long distance races, lifting weights regularly, and generally felt like my body and mind were in the best shape they’d ever been in.
Skills – I had picked up enough skills in my past few roles that I felt generally capable of taking something from zero to one. (or at least not completely useless)
Judgment – My taste in picking opportunities worth working on had significantly improved since I first started working in tech / startups. IMO, this is an underrated facet of careers and entrepreneurship.
Confidence – I’ve long struggled with imposter’s syndrome. Feeling like I didn’t belong in the room. Like I was fooling everyone. Etc. The things that most of us have faced at one point or another. While that wasn’t gone, I had a genuine belief in myself that hadn’t existed before.
Side note – Being around and working with people you think are better than you day-in-day out is the best way to fix this. It teaches you that the people you put on pedestals are human too.
What matters to me in picking / starting projects & companies
I also felt much more centered on what mattered to me in pursuing something new.
Conviction – If I don’t have deep conviction in what I’m working on, I’m a shitty salesman. I can only sell if I deeply believe in it first. Selling before a product or company even exists requires building and leveraging relationships – customers, partners, team, etc. Pounding the table and making them believe you will do right by them if they take a bet on you. I can only do that if I have immense personal conviction first.
Love your customers – People spend a lot of time getting excited about startup ideas, products, and markets, and not enough time getting excited about the customers they’ll serve. If you want to start a business selling to restaurant owners, you better f*cking love spending time with restaurant owners. Your customers need to be or become your people.
Personal advantages – One of the biggest things I learned from Erik Torenberg is to ruthlessly identify, build, and leverage personal advantages. Erik is one of the best in the world at this. The hard thing about this (especially if you’re younger) is that figuring out your advantages is often non-obvious. But they’re worth identifying and leveraging, however small they may start out or appear.
Find a wave and ride it – Bad markets are the reason many great products and teams never find PMF. A declining or non-existent market will kill you no matter how good your execution is.
Avoid the hype cycle – I didn’t want to be in the hype cycle. One of the things I learned the hard way from the previous 2 startups was that being a “hot startup” or in a “sexy category” is overrated. Markets change. Investor interests swing more wildly than the price of meme coins. The hype distracts you from what really matters. Many founding teams pursue opportunities for clout and status first, problem/customer/opportunity second. What’s high status in tech is ephemeral. Problems and customers are not.
Go after something hard – Software ate the easy sh*t. We have tons of products today in every market, for every conceivable problem. Code on its own is approaching commodity status. The only enduring value is in identifying hard problems that face customers you understand, solving that problem better than anyone else, and staying obsessed with serving that customer forever.
With this in mind, I started my pursuit.
The accidental part-time job that changed everything
By the end of March 2023, I had tested and eliminated multiple ideas and begun working on something that had early momentum and customers. (That company and those 3 months are a longer story for a future post).
Then my friend Hunter called. I didn’t know it then, but this call would change everything. The trajectory of the next 12 months (years tbh) of my life had been altered. He asked me to help him out part-time as his company's de facto Head of Finance. For context, he’s the co-founder/CEO of a fast-growing local food marketplace that’s grown from 1 state to 15+ in less than 18 months. Insane growth. They’re crushing it. I’m a proud investor.
His team was small. His CFO retiring. He needed help from someone he trusted.
So I said yes. Being early on in starting a company (also known as being unemployed), I had the time.
The fast growth of his business had led to a large growing list of finance and compliance problems.
The initial list of things we needed to solve included:
New accounting firm – Bookkeepers were needed ASAP.
Sales tax compliance – We had received scary letters telling us that we needed to file sales tax returns.
Payroll compliance – Running a remote team, we were unsure if we’d registered in all the right places for payroll taxes.
Business licenses – Building a marketplace with physical operations in multiple states brings up a surprising amount of potential local, business licensing problems.
Mail – Not to mention the sheer volume of mail you get as such a business with some form of presence in multiple different states.
Finding a new accounting firm was not hard. Them telling me they didn’t deal with any of the compliance issues we were facing meant we had a lot of problems to solve on my own though.
The first big compliance problem I tackled was sales tax compliance. (I know you can’t wait for me to start talking to you about compliance).
Sales tax compliance
Okay compliance isn’t fun. No one likes dealing with it. But sadly, running a business you deal with a hell of a lot more of it than you ever would have expected.
Quick rant on why sales tax is complex:
The great thing about software and the internet is that they’ve dramatically decreased the barriers to distributing products and services across multiple states and countries, even for a business with physical operations like us.
The downside of this is that local states, countries, and other regional government jurisdictions still want you to comply with their laws regardless of whether you’re a local mainstreet business or a tech company who’s literally never visited the state. If you do business there, it’s still your problem.
Additionally, there is no IRS for sales tax. No single entity you register and file returns with. Rather, the sales tax law is regulated by individual states, counties, and cities. There’s no universal standard. The tax law and rates in Ohio are different than in California. The tax rate varies all the way down to the state, city, country, municipality, and special district level.
I had some vague familiarity with this problem from companies I’d work at earlier in my career but was shocked with how hard it was to solve when I was the one doing the work.
We had to figure out:
What we were supposed to be doing (e.g. which states we need to register in, were our products taxable?, etc.),
Then how to do it correctly:
Registering
Understanding how our products were taxed
Calculating tax rates accurately at checkout and invoices
Filing returns
Etc.
My text exchange with the founder of Ordo trying to figure this out.
My first instinct was to ask all my finance / CFO friends what they did to solve this. The answer I consistently got back was that they used this company called Avalara. They’re a large enterprise software company that does sales tax compliance.
After being charged $4k for a “nexus study” just to get a quote, getting shuffled around by their sales team, and months of trying to implement their product, we gave up on working with them in favor of figuring out an in-house solution. I could (and might in the future) go deeper on what was frustrating about working with them, but long story short — their product is ancient, frustrating to setup for me + our engineering team, and their people genuinely didn’t give a f*ck about us.
Payroll tax compliance
We encountered similar problems in figuring out our payroll registrations. It didn’t matter that the company was headquartered in Michigan. Hiring remote employees forces you to register across all of those different states and filing a bunch of different types of taxes.
One problem is that it’s really easy to miss this fact because one might assume that Gusto, Rippling, or whatever payroll provider you pick just does that for you, but this is often not the case. This is why companies like Abstract Ops (we’ve been happy customers) and others have popped up to chase this problem in the US and companies like Deel and dozens of others are making gob-stopping amounts of money internationally.
Don’t even get me started on how terrible working with Corpnet was. (Gusto’s suggested partner for payroll registrations).
Also, tons of these payroll companies will make you think they do your taxes in local states — just for you to get a notice in the mail that they didn’t do a specific tax filing and now you’re paying a $2k fee to the state of New York (not speaking from experience or anything).
Business licenses
Then there was our attempt to get a quote on business licenses from Wolter Kluwer (who an accounting friend recommended). My friend Rohit’s experience similarly matches my own.
The list goes on
I could keep going.
1099s for contractors – painful
Registered agents – the worst
Income taxes – should not be so hard to find a tax CPA you like working with (my friend Nick is working on this)
When you’re the only finance, accounting, or ops person at a fast-growing company, you have 12 different jobs at least. Spending your time on the phone with the state of Florida or exchanging dozens of emails just to solve a simple state registration is the last thing you need or want.
The beginnings of an idea
Our compliance journey got so frustrating I once jokingly suggested I should start a company around this instead of what I was working on. Hunter started trying to convince me to do it.
The more I thought about it, the more it made sense.
At Capital, half the products we worked on (SPVs, SAFEs, payroll, banking, etc.) were glorified back-office tasks too.
Half the companies I’ve invested in just abstract away something annoying and/or complicated from the end user. I could see myself building this. And I knew enough to be dangerous on some of the problems we’d face.
But first, I had to step back and ask myself why state and local gov compliance was so difficult in the first place?
Why we can’t have nice things
Taking a step back, it was surprising to me how hard it was for us to manage very theoretically basic compliance tasks like licenses, payroll, sales tax, etc. These tasks have existed for a long time.
The software products we attempted using were straight out of the 1990s. Very enterprise vibes. The service providers were slow, old school, and expensive.
You can do many of these tasks manually but that takes even longer and comes with high risk of doing something wrong. (For example — Did I file my Delaware franchise taxes this year? Yes. Did I do it correctly. No clue. I really hope so.)
When you dig deeper, the why behind it all starts to make sense.
States and countries have only recently begun to crack down on the sheer amount of non-compliance from modern software and internet-enabled companies.
Governments are mostly well intentioned but reactive. Technology has long moved faster than legislation. But government offices and auditors are also far from stupid.
Historically, most of the software products and services firms in these spaces started out focusing on legacy enterprises. SMBs were widely considered a bad market and even if you did serve “SMBs” you were actually just serving enterprises slightly too small to be in Fortune 500.
A lot of regulation has only recently been updated to match the realities of internet-native companies.
Many companies have been able to skate by side-stepping regulation or hoping local governments don’t come after them, but eventually everyone has to pay taxes and comply with regulations. It’s a reality of doing business.
All of the above are true, but they are not good reasons for things to stay the way they are.
The evolution of the back-office stack
Part of why this looks obvious to me is that I’ve spent the last several years of my career watching the back-office stack get exponentially better.
Banking
2017 – I opened our bank account for my first business Olympus in 2017. It took us 6 weeks and multiple in-person trips to the local bank branch to get our account setup. Each founder signed our personal assets as collateral for credit cards.
Today – I opened a Mercury business checking / savings account with a debit card in < 2 hours.
Payroll
2017 – It took us 2 months to get set with ADP to do payroll for Olympus in 2017. That was just to do payroll in FL and Indiana.
Today – Today, you can hire and pay employees compliantly anywhere in the world in minutes with Gusto, Deel, Rippling, etc. Newer companies like Abstract Ops and Warp have made it even easier by taking on the state compliance work as well.
Expenses
2017 – At Olympus, we each kept a manilla folder of all our business expense receipts and either physically dropped that folder off at our accountants office or sent him pictures (he hated it when we sent pictures instead).
Today – A few years later, I used Expensify for the first time – magical in comparison. Then Ramp came out. Today, the idea that corporate cards and expense management were two different things sounds absurd. It almost feels like it was always this way.
You can just keep going down the financial stack. This either has happened or will happen to every element of the current and future stack.
In the future, every single mundane back-office task across finance, accounting, and compliance will be automated fully and/or made easy by software on a long enough time horizon.
The cost of intelligence going to zero only makes this more true.
Going deep
When you think you’re onto something as a founder, you’ve either discovered something interesting or you’re drinking too much of your own kool aid. The only (albeit obvious) way to discover which is to talk to customers who will poke holes in your ideas.
There were two primary sets of questions we needed to answer:
Who else felt this way? — Who else had this problem and felt the way I did? Did other operators, finance, and accounting folks at other companies feel this way too?
Could we actually build the products we envisioned? — Why were the existing products and services so bad? How hard would it be to actually build one or more of the products we had in mind? What kind of regulatory burden were we looking at? Etc.
To answer the above questions, we spent the next ~6 months talking to hundreds of customers and industry experts.
I’m deeply grateful that a lot of really smart people spent time with me, answered my dumb questions, and introduced me to others who helped me answer even more questions.
These are just a few examples (all anonymized). Without these folks, what we are doing today would have been impossible.
Shoutout to John Young, Jaimin Desai, Sakib Jamal, Tim Metzner, Sam Huleatt, Jordan Olivas, Kenny Tucker, Justin Mares, Regina Gerbeaux, Derek Lee, Margot Black, Dave Seeman, Aaron McClendon, Charles Cushing, Maex Ament, tons of folks in the On Deck community, and many many others for opening doors.
By the end of this process, we had conviction on what we needed to build, a solid idea of how to build it, who we’d need to recruit, who our customers would be, where to find them, what niches to start with, etc.
Pulling the pieces together
Recruiting customers
Our first customers were my friend’s company and another that I met during the discovery process. Both signed up before we had written a single line of code.
Recruiting a team
During that whole process, I had been recruiting others to join me. Mostly engineers and compliance SMEs.
I tried to get one of my colleagues from Capital to join, but the timing didn’t work out. Got introduced to multiple other great engineers looking for co-founders but none were the right fit. I extensively trialed working with an old friend, but it proved to not be right either.
I was striking out hard. Tbh, this was one of the hardest periods of 2023 for me.
Then I got lucky and my friend Steven called me to tell me he was leaving his job and wanted to chat about what was next. For context, Steven was Head of Engineering at On Deck (a startup we both worked at together) and is one of the most exceptional engineers and humans I’ve ever worked with.
We started working together two days later. The day he stepped in I knew he was the right person to build this with. Fortunately, he didn’t hate working with me either. :)
It’d take several more months of recruiting on the compliance side, but eventually, we found and convinced one of the top compliance folks in the world to join our team. That took our odds of success to a significantly higher level in ways we couldn’t have anticipated.
This post isn’t about my lesson learned but I will say this – never ever lower your bar in recruiting. It’s tempting to do, but being patient and relentless about recruiting the best people is always worth it.
Recruiting money
In the fall, I went to the market to raise our first round of funding. It wasn’t exactly a good time to be raising (or so I was told). But after several weeks of pounding the pavement we found people that got the problems we wanted to solve, saw the market opportunity, and thought we could pull this off.
By the end, we were 10x oversubscribed to what I had originally set out to raise.
Will likely write more about our fundraising experience in a future post as a bunch of founder friends have been asking us to do so.
Where we’re at today
Today, we’re well funded, have recruited a small but mighty team, and are serving a small group of early customers. We continue to build out our initial product, slowly onboard new customers, and keep laying bricks day after day. We’ll be launching publicly later this year.
Going forward, we plan to write and talk more about our journey to date, what we’re building, what we’re learning (good and bad), and why we’re excited about it all. I’ve long known, witnessed, and experienced the power of writing and publishing publicly. Hopefully, we’ll find the right rhythm to do more of that in this new chapter.
The last 15 months have been both the hardest and most rewarding of my entire life. Wouldn’t trade it for anything.
Thanks to Jeff Tang, Jake Cohen, Tim Metzner, Steven Schmatz, Scott Hickle, and many others for pushing me to publish something like this.
More to come in the future. As my friend David likes to say, watch this space.
Love reading your posts, they show just how clear your thinking is. No doubt this is gonna be a good one!
Let's go!!