Why we Chose to Build a Sales Tax Solution

by Ryan Thompson November 18, 2016

I’ve been involved with TaxJar from the beginning, first as an advisor, and now as an employee.
I get a lot of questions of how and why we chose to build sales tax technology, so I wanted to share some insight as to why.
Like many great ideas, TaxJar was created at a bar… the Brigantine in Del Mar, CA, home of the best fish taco in San Diego.

Tacos at the Brigantine Del Mar CA

The magic fuel for startup ideas

Mark Faggiano, TaxJar’s founder, and I had started and sold two prior companies together (both of which were conceived over beers at The Brig). It was 2012, and we’d both agreed it was time the have the startup conversation again. So, we did what any startup nerds would do: agree to bring our respective list of top business ideas to our favorite bar, drink a few beers, eat a couple fish tacos, and see what happens.
There was exactly one business idea that was on each of our lists: make sales tax compliance easier for online sellers.
Let me share a bit about why this idea was on our lists, and ultimately why we decided to go from idea to business.

It was, and is, about the Customer

Mark and I both had a deep understanding of the pains of running a small business. Me from my years as an eBay seller and my time at Intuit. Mark from years of running a web development agency, and building multiple products for SMBs. If there’s one thing we both took away from those experiences, it was that the “back office” parts of running a small business are painful and take valuable time away from the biggest challenge all small businesses face… figuring out how to make money.
We both knew enough about sales tax to know it was potentially the most painful back office pain SMBs face. And we knew the need was unmet in the current market. Existing sales tax solutions were either built on outdated technology and prohibitively hard for SMBs to use, or built for enterprise and not affordable for SMBs. New and growing online businesses still had to struggle through reporting and filing sales tax, and we both knew it didn’t have to be that way.
If we could find a way to help these merchants automate their sales tax, we could give them back something all SMB’s need – valuable time they can spend on growing their businesses. And, if we could play just a small part in helping SMBs be successful (and grow), we were doing what we loved.
To this day, knowing we are providing a solution that helps our customers be more successful in business is the fuel that keeps us going.

We Knew Enough to be Dangerous

TaxJar isn’t our first rodeo in tax compliance… it’s actually our fifth, and that’s scary. I’d spent time working at two automated accounting and tax prep tools for SMBs: Intuit (makers of QuickBooks and TurboTax) and Outright (now GoDaddy Bookkeeping). Mark and I built a company called FileLater that helped individuals and businesses file tax extensions online. Mark also built a company to help SMBs file their quarterly estimated taxes online. None of these companies dealt solely with sales tax, but we understood generally how to navigate tax law, we had built tax technology, and we knew how to work with state departments of revenue. So we had a decent head start.
It also didn’t hurt that a big chunk of our professional network was in this same space. We were closely connected to amazing technologists, product & development minds, writers, marketers, and more who knew tax and accounting, and who understood small business owners. At a minimum, we had a network around us for advice. In a dream scenario, maybe we’d be successful enough that we could all find a way to work together on this problem.
Looking back, what I realize now is that we were barely scratching the surface on sales tax. We knew a lot more than most people, but sales tax compliance is HARD, and we simply didn’t know what we didn’t know. It took about a year of research before we really knew what we could build for a minimum viable product. And now that we’ve been working on this business for almost 4 years, we are finally able to peel back the onion and understand some of the nuances we didn’t know even existed when we started.
But the important thing at the time was that we had relative expertise in this space due to our prior experiences, and felt comfortable digging in.

The Opportunity Met our “Startup Criteria”

One of the benefits of being a serial entrepreneur – one that hopefully offsets the premature aging from stress! – is what you learn along the way.
Over time, Mark and I created what amounts to a checklist of what our dream company might look like one day. We figured one day we’d stumble upon an idea that meets most of these criteria. This doesn’t cover some of the obvious things that were core to our DNA like finding a pain point that we knew we could solve, and knowing that anything we do would highly leverage modern technology as a solution.
Here’s our dream company criteria:
Limited Seasonality – This became a requirement after building FileLater, a company that did 50% of it’s annual revenue in a single day, and 90% in just one week. Neither of us had interest in doing that again, so we required that any future endeavor would be a year-round business with limited seasonality
Build for Small Businesses – Given our experience, passion, and understanding of SMBs, we knew this was a sweet spot for us, at least as a starting point. (What we truly didn’t expect was how quickly mid-market and enterprise customers would seek out our solution.)
SaaS – At the time, SaaS was growing in popularity as a business model. If we could find something that provided so much value that customers were willing to subscribe to it, we knew we’d have a great company on our hands.
A Large Enough Market – They way we thought about this was could we build something that could one day generate $10M, maybe $100M, or maybe even $1B in revenue.
Significant Barriers to Entry – Frankly, we wanted to solve hard problems. Partially because these are good businesses to build, but also because we like a challenge. Sales tax has turned out to be the ultimate challenge, and we’ve loved every step of the way.
TaxJar fit most of these criteria. If anything, we underestimated the size of the market and our ability to compete and disrupt the incumbents. But to be fair we also underestimated the complexity of sales tax.

The Timing Was Right (Kind of)

We talk a lot about the wind being behind the sails of TaxJar. When we first discussed this idea, eCommerce was on a tear and we were seeing companies like Amazon and Magento changing the game for online sellers, making it easy for small businesses to enter eCommerce.
At the same time, states were also getting hungrier for revenue and seeking legislation that would require deeper levels of compliance from online sellers. Technologies like open APIs were becoming more readily available for developers to tap into eCommerce platforms to build tools for merchants. The time felt right to do this.
But, building a startup isn’t one of those things you can do with a partial commitment. If it weren’t for Mark’s passion to get TaxJar off the ground, TaxJar would never have happened.
In the weeks following our evening at The Brig, we had several follow up conversations as we assessed the business opportunity. During this time, my current employer, Outright, was in the process of being sold to GoDaddy, I was 3 months into being a first-time parent, was half way through building a house, and was being recruiting to run business development at Magento. I ultimately decided I wasn’t mentally in a position to give a startup my all. But, Mark was. So, Mark talked me into being his nights and weekends business development guy while he launched the company… and the rest is (on it’s way to) TaxJar history.

Sales Tax was the Right Choice

We chose sales tax because it fit our startup criteria. But one thing we didn’t quite expect was just how awesome it would feel to talk every single day to customers who are thankful to finally feel confident about handling sales tax.
TaxJar is able to take away confusion, frustration and even anger over the difficulties of sales tax and allow small business owners to get back to doing what they do best – growing their businesses.

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