Show notes
In this episode of Marketing Spark, Mark Evans sits down with Kirk Simpson, co-founder of Wave Accounting, which was sold to H&R Block for $537 million in 2019.
Kirk shares his journey from Wave's early days, detailing the inspiration behind the company and the challenges faced while growing it into a successful business.
Key highlights include:
- Origins of Wave Accounting: Kirk and his co-founder James Lochrie's vision was to simplify financial management for small business owners, inspired by Mint’s innovative approach to personal finance.
- Challenges and Successes: The duo faced initial struggles with funding and market penetration but eventually succeeded through strategic positioning and a fortunate feature in the Google Chrome app store.
- Free Model and Product Development: The advantages and pitfalls of offering a free product and the importance of continuously improving the product to meet user expectations.
- Venture Capital Journey: Insights into raising venture capital, the adrenaline and focus it requires, and the importance of telling a compelling business story.
- Acquisition by H&R Block: The process and emotions involved in the acquisition, including the challenges of transitioning from a startup to an acquired company.
- New Ventures: Kirk's latest entrepreneurial endeavour, GoConfirm, is an identity verification platform to enhance trust in peer-to-peer transactions, particularly in marketplaces like Facebook.
Kirk’s story is a testament to the rollercoaster ride of entrepreneurship, highlighting both the highs and lows and offering valuable lessons for aspiring entrepreneurs.
From the conversation
How Wave started and why it was free
Kirk Simpson is co-founder of Wave Accounting, which H&R Block bought for $537 million in 2019. Mark Evans first met him in 2009, when Kirk and co-founder James Lochrie were building the company.
Kirk gives James the credit for the original idea. James worked with small business owners at a tax prep firm and saw how bad their finances were and how much they disliked doing them. Both founders were influenced by Mint, which was at its peak in 2009 and 2010. Mint let users hand over their bank logins so transactions could be screen-scraped into the tool, and it was free.
Kirk's thinking was that people enjoy personal finance tools until they stop using them, while small business owners have to keep up their books because of tax and other reasons. Mark says he tried to talk Kirk out of going completely free.
Positioning and a lucky break in the Chrome store
The first big challenge was spreading the word. Kirk's main advice is to get positioning right. Most accounting software at the time was aimed at accountants, so Wave worked on talking the language of small business owners. The tagline was "shoebox accounting stops now," which put an image in owners' heads that nearly all of them recognized.
The team also tried PR, social media, friends and family, and referrals. Then luck arrived. Their developer asked for permission to spend $5 listing Wave in the new Google Chrome App Store and about two days building a lightweight integration. One January Saturday, Kirk woke to an inbox full of sign-up emails. The store's editor had featured Wave, and sign-ups rose from about 50 a day to close to 300 or 400.
Kirk's takeaway is to chase every avenue and settle on positioning early, so that people understand the offer when a break comes.
The problems with free and how Wave made money
Wave's positioning worked so well that the product could not keep up with the hype. Tens of thousands of people were signing up each month and many were churning. Kirk says free brings volume that helps with A/B testing and funnel changes, but it does not fix product gaps.
He describes the first reaction as recognizing that strong demand is a blessing. After that, the whole company worked to find the deficiencies. Free made this harder, because there was no credit card and no monthly payment event to learn from. Small business owners also move in and out of products depending on their lives. Kirk says it took until 2015 or 2016 to turn the corner on the product, with fundraising demands adding pressure along the way.
"And so the problem with free is that you get a whole bunch of people in the door."
Revenue from advertising and then fintech
Mint reportedly reached about $10 million a year in revenue from advertising. Wave followed that model and got its ad business to about a $1.5 million run rate. Kirk says it would not scale, pay the bills or support the valuation they were raising at.
Two things changed that. Fintech became popular, and Wave hired Les Whiting from the payment processing business. Les helped Wave move into payments early, when it was working with Stripe at 30 or 40 people. Payroll and banking followed. When Kirk left in 2022, it was public knowledge that Wave was making about $100 million a year.
Raising venture capital
Raising the seed round in 2010 was hard in the Canadian ecosystem of the time. Kirk estimates the team made 100 or 200 pitches. He calls fundraising adrenaline-fueled, all-encompassing, thrilling and frustrating.
His first piece of advice is to decide whether venture capital is needed at all. Wave was building free software, so costs would rise well before revenue, and venture funding was necessary for them.
"And the absolute answer is that if you can bootstrap, if you can drive the growth of the company through revenue, it's absolutely the better path because you're not suffering the level of dilution."
The H&R Block sale and the years after
Wave nearly sold to Xero in 2013. Kirk was negotiating his relocation to San Francisco when the deal was pulled at the last minute. In late 2018 and early 2019, Wave was in the middle of a fundraise that was going well but not exceptionally well. H&R Block then made clear it wanted an acquisition, not a strategic investment. Kirk met CEO Jeff in March and the deal closed in June.
The emotions were mixed. Kirk felt satisfaction, but also anxiety all the way to signature. The most stressful moment was an 8 a.m. all-hands meeting to tell the team before H&R Block announced the sale. After closing, he found himself crying on his back deck before a weekend of celebration. So much of his identity was tied to the company, and in his mid-forties he wondered what came next.
He stayed three years. H&R Block largely left the team to run Wave on its own, and the executive team stayed in place. Kirk says everyone felt an obligation to deliver on what H&R Block had paid.
"And for any entrepreneur, there is just nothing like having options in order to drive parties to move quickly to decisions."
GoConfirm and lessons carried over from Wave
Kirk says he never expected to start another company. Peter Caraccia, an early Wave investor who later helped sell the business, kept talking with him about passwords and identity. Kirk was drawn to the market and to the consumer space. He took much of the summer off and says he should probably have taken more. What pulled him back was the work itself.
In 2022, GoConfirm raised a $6.5 million U.S. seed round, with Sam and Jason joining as co-founders. Kirk says raising was easier because earlier investors backed him. He wants to avoid being overfunded without the fear of running out of money. Having seen about a thousand people work at Wave, he trusts his instinct for hiring, and he keeps the team at about 10 people, using WhatsApp and its roughly 60 people as a mental model.
GoConfirm's view is that trust is degrading as more interactions go online. About 1.2 billion people a month use Facebook Marketplace, which Kirk calls rife with scams. The team is building identity verification that people control on their own phones, starting with peer-to-peer transactions such as resold Taylor Swift tickets. The waitlist was set to open over two to three weeks. GoConfirm also released ScamSpotter, where users upload a picture of a suspicious text or email. Kirk says the main challenge is that a new way of building trust could itself look like a scam.
"there is nothing that motivates me more than working with great people on a hard problem. And that is a drug that I experienced at Wave that is just hard to move away from."