Podcast: Building a For-Profit Business, Interview with Cammie Greif
The profit model in action. This podcast looks at how to get what you want out of your business, right up until you sell it.
About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
Cammie Greif is one of the four co-founders of 2nd Story Software, Inc., makers of TaxAct. 2nd Story Software (now known as TaxAct), is a tax preparation software company serving the consumer tax and professional tax preparation markets. As Chief Marketing Officer, Cammie drove the rapid growth of the company from its inception in 1998 to the stock sale in 2012 to Blucora. Cammie was instrumental in carving out a market in the highly competitive consumer tax industry by offering free tax software, and disrupting the industry by adding free e-file to the product offering, with the largest competitors TurboTax and H&R Block following suit. Cammie and her co-founders bootstrapped the business and attained profitability in the first year of business, starting in February 1998 and releasing their first product in November of the same year.
In 2004, 2nd Story Software received a majority investment from private equity firm, TA Associates. Cammie was involved in all facets of the process, including the selection of investment bankers, development of due diligence, management presentations and negotiations. After 2004, as a private equity investment, Cammie was also involved heavily in the due diligence development for processes that led to the eventual sale to Blucora in 2012.
Since leaving 2nd Story Software, upon the sale to Blucora, Cammie dedicated her time to mentoring entrepreneurs in all stages of their business, with a strong focus on startups. In addition, she manages investments, including equities, commercial and land real estate, angel investments, and venture capital. She is a Board of Director of Timberline Manufacturing in Marion and St. Martin Land Company in Cedar Rapids.
If you listen, you will learn:
- Cammie’s time with Parsons Technologies.
- How Cammie found her 3 partners and their initial shareholder agreement.
- The tremendous effort put toward clear communication with the TaxAct leadership.
- The early milestones for the company and what they did when it didn’t happen.
- Are you building a profitable or a growth-oriented business?
- Cammie’s focus on building a profitable business.
- Why Microsoft failed in the tax software space.
- The move to an online service.
- The 2002 sales pitch and due diligence.
- The sell to TA Associates in 2004.
- The expectations of Cammie and her partners.
- The truth about private equity firms.
- Why TA?
- The changes made by TA.
- The unexpected blow to the business during the first year with TA.
- How Cammie and her partners corrected the problem.
- How TA was able to help during that time.
- Returning to sale plans.
- Reading in a succession team for a sale pitch.
- The agreement with HR Block that fell through.
- The sale to InfoSpace.
- What it is like selling to a public company.
- The final deal structure.
- Cammie’s move into startup mentoring.
- The importance of recognizing trends and patterns in business.
- Cammie’s advice for the listeners.
Announcer: Welcome to Life After Business, the podcast where your host, Ryan Tansom, brings you all the information you need to exit your company and explore what life can be like on the other side.
Ryan Tansom: Welcome back to the Life After Business podcast. This is episode 95. Did you start your company to purely make money? Well, that was Cammie Greif's goal with her and her partners, why they started TaxAct, which was the third largest tax software underneath H and R block and Intuit. They had a machine. It kicked out so much cash and what they did over the years, in between tax season, trying to take the company in the market, then tax season and then recapitalizing with a private equity firm to then tax season, then taking on the Department of Justice and an antitrust lawsuit. Cammie's story is amazing. They did so many things right and she walks us through the whole journey of all the twists and turns and what she was doing and why her and her partners had the intentions that they did. I'm unbelievably happy that Chris Yates from the Rhodium Weekend community introduced me to Cammie because the moment that I heard her story, I couldn't wait to get it on the show and have everybody else hear what she had accomplished with her team. So without further ado, I really hope you enjoy this interview with Cammie.
Announcer: This episode of Life After Business is brought to you by Solidity Financial's growth and exit planning. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your timeframe to the right buyer at the price you want.
Ryan Tansom: Good morning, Cammie, how are you doing?
Cammie Greif: I'm doing great, Ryan.
Ryan Tansom: I'm excited to have you on the show. We got introduced through a mutual friend and network we're in called Rhodium Weekend and Chris Yates, thought we would be... we would hit it off and he was right. You and I had, I think it was half hour conversation that was scheduled and I think we ended up talking for about an hour and a half or something and it was a... You have such an awesome story that I was excited that you were up for being on the show. So the listeners that had not been sitting in on that phone call, can you maybe go back and let's just kinda start from the, the beginning of your journey, Cammie, and explain the background of how you ended up becoming an entrepreneur and the different opportunities and the kind of variables that fell into place for you and your partners to kind of jump in together.
Cammie Greif: Okay, sure. Well, I think first it's important to say that the company that I founded and eventually sold with called TaxAct, which is a tax software company and has a product that you can purchase and use online as well. But so, so that said, let me go back to the very beginning. It really started at a company called Parsons Technology, which was a company in the mid-eighties that was started by the one and only Bob Parsons who also started Go Daddy software. And so I was working at Parsons Technology. I had, um, I have a CPA. I'm a certified public accountant and I started at Parsons working on a development team. I was their domain expert and eventually became the development group leader, which at one point, Bob said, I really think you should be in marketing. So I went to marketing for a stint and then he said, I think you should be in technical support and uh, and I'm thinking to myself, you know what? [Ryan interjects: I'm a CPA!] I'm a CPA and I really enjoy the development side and now you want me to do technical support.
Cammie Greif: And um, but it was, it was great. Bob, for whatever reason, helped me move around to the company and see lots of different aspects which really helped me when we started the company later on down the road. But anyway, so in the, this was in the, uh, by the time I was in technical support, it was probably the mid-nineties and the big thing. There was so Parsons Technology at 60 different products, one of which was the personal tax edge, which was a tax software product. And basically the company ramped up for tax season and then had these 60 other companies that they sold to keep the customer base engaged with the company so that when tax season came around again, we have those customers ready to go. So with that, the technical support and the call centers had to ramp up and then kind of ease back down.
Cammie Greif: And so that was really the challenge of why I went to the technical support, which was to really run that ramping up and down. Now that all is kind of a background of how I was well-rounded. But what really was the key in technical support was we were answering customer questions through compuserve and bulletin boards. So this was, remember [Ryan interjects: a while ago!] Way before the Internet was really a thing, right? Um, and so I had a group in my technical support that was really kind of on the cusp of understanding online and the Internet as it was at that point. And the World Wide Web www kind of came into play around that time. And, and we sat down together and my team said that we think we need to have a website, this was before most people had a website, so we put together a proposal, talk to Bob, Bob said, sure.
Cammie Greif: And so then I ended up breaking off with that team and we started a development and marketing group for online. We had our, we did the first website. We also built our own ecommerce system in that group, including downloadable software. At that time, the only downloadable software really was Digital River up in Minnesota. But so we really were on the cusp and so that gave me the experience of online. So then in '95, 1995, Bob Parsons sold Parsons technology to Intuit, which is the maker of Turbotax. So direct competitor. At that time, Parsons was the number two product in the market into. Intuit was number one. And so there was that merger that happened Intuit ran the company for a couple years. So by '97, they discontinued the tax or the personal tax edge product and sold all the rest of the company off to Broderbund, which at that time was known for the Reader Rabbit and a lot of other educational and creative type products. At that time, uh, our personal tax edge customers were left with the decision of moving to Turbo Tax or using Tax Cut, which was eventually bought and converted to H and R block's product.
Cammie Greif: So we really. So then, um, my other three partners, I had three partners. We all... equal partners in the company. One was the VP of development who is also a CPA and a really good tax guy. So I just want to throw out, even though I'm a CPA, I'm not a tax person. Don't ask me tax questions. Um, and then there were two developers, one of the developers was our best. He was our master programmer at, at Parsons, the other one, another awesome programmer. But he ended up moving into the online and was working side-by-side with me on some of the online pieces of the, of the company. So the four of us got together and decided that we needed- that there was this perfect storm happening for a tax product and we ended up taking the leap of faith and left our jobs in February of 1998 and started Second Story Software, the makers of TaxAct. That was kind of a leap of faith.
Ryan Tansom: Yeah. Huge leap of faith. And so when you're, you know, when you got... why those four people? Did you guys... was it different skillsets? Was there kind of a leader that was... How did you guys all come together and then, you know, I think there's, that, there's so much, Cammie, that happens when your people are starting these companies that comes the, the challenges come after the fact, but you know, all equal partners. How do you make decisions, roles, responsibilities, was there certain things that you guys cleared up while you guys were doing that? And then we did everybody just kind of finance their own lives until revenue started coming in?
Cammie Greif: Yeah. So that, that. I'm glad you brought that up. I kind of left that out of the story. Um, so originally it was Lance and our, our tax guy and the two programmers who had gotten together and they also had a fourth person originally that was there and so it would have been to tax guys and programmers and they had already kind of come to the conclusion that this was going to be a bit of it, you know, it challenge, we weren't, they weren't really thinking that they would go out for money, they were going to bootstrap it. And so they made the commitment that it would be two years no pay. So eventually the one partner, one of the tax guys decided that that just was not in his, just wasn't in his DNA and so he dropped out. So the other three took a step back and said okay, let's look at who are the people we need to have and what are the skill sets.
Cammie Greif: So they had a tax person and, and being the VP of development really understood, you know, how, how development works and that whole piece. Also being a CPA, he had also worked in public accounting. So he had seen startups and what worked with startups and what hadn't worked with startups and so, you know, really Lance really drove the, you know, the structure of the business and you know, some of the parameters that we work with them and, but anyway, so they looked at this and said we really are missing the marketing and operations piece of this. And so knowing my history and what, what I had done at Parsons, they reached out to me and said, you know, we know we want to be online. At this point, desktop products were still pretty, pretty popular. So we're going to start with the desktop product. That's where our skill set lies, but we know we want to move online and you have all this online experience so we want you to be a part of this.
Cammie Greif: So it. So it then became the four of us and like I said, equal partners. We had some of those parameters where we went for two years, no pay. At the end of two years, we would sit down and decide what we were going to do. We also had the requirement that if anyone of the four felt strongly that we should or should not or that we should not do something basically then we didn't do it. And you know, that's how strongly we respected each other. We respected each other's opinions and we never had that situation come up.
Ryan Tansom: Even throughout the whole journey and everything, all the different things that I know we're going to get into some of them, but that never came up. That one person kind of like dug their heels in and you guys couldn't figure out a way to go through it?
Cammie Greif: No, we didn't. [Ryan interjects: super cool.] It really was one for all and all for one.
Ryan Tansom: What are some of the things that you guys did in order to make that work? Because there's so many partnerships... I mean actually one of my... I've had a couple of these interesting interviews where one that was a similar situation, lots of people and an amazing collaboration. Another one where it was just like the worst nightmare story and so how did... Was there certain things that you guys, did they communicate?
Cammie Greif: First off, all of us had worked together at Parsons and had seen each other's work ethic, right? And I'm pretty proud that all four of us had very good work ethics and there was never a time where any one of us felt like you're not putting in the time or you're not doing what you need to do. In fact, in our operating agreement and our original shareholder agreement, we had a clause that if three of the four felt that one was not pulling their weight, we could vote them out and they would lose their shares.
Ryan Tansom: Oh wow. Like not even like pay them out, like totally oust them?
Cammie Greif: Yes.
Ryan Tansom: Whoa.
Cammie Greif: So that, you know, and we would joke every once in awhile about pulling that out, but no, we, we were, we all respected each other a great deal. Now the funny thing is, is Jerry the, I'm sorry, the master programmer and I, Jerry, never, didn't really know each other before we started this. So I had worked with the other two but I hadn't worked with him one-on-one. So it was, it was interesting, you know, but our mutual respect from hearing how the other one works and then starting to work with them just grow tremendously. And so we, we never had that issue. Now that's not to say we didn't have disagreements, didn't say, you know, I don't think that's the right way to do it, but we communicated. The other thing that we did was we always had our offices close together. So it wasn't a situation where, you know, marketing was in one end of the building and development was in the other.
Cammie Greif: We, the four of us always had our offices right next to each other so that we would have impromptu meetings all the time and if one person was talking to another, we usually stood in doorways to have our conversations. So as you're having that conversation, the other two, if two people are having a conversation, the other two could hear what was going on and say, you know what, that could affect me. I better get in on that conversation and we would just go in and then by the end all four of us would be sitting in one office communicating. Of all the pieces, that is probably one of the strengths that we had that carried us through.
Ryan Tansom: That's super cool and I know it's very unique and it takes a lot of work, too. And so in terms of the strategic vision and stuff like that, what was the offer you guys pretty much on the same page and different skillsets. What were some of the main milestones and strategic things that you guys were trying to accomplish and what were some of the ones that you actually checked off the box?
Cammie Greif: Well, first off we got into this thinking that we might be a thorn in Intuit's side and get bought out in a year or two. Take... put the work in, work a year or two, get an offer, maybe tip pocket a million bucks or so, and then we'd be onto the next thing. Right? Well, 14 years later, when we finally sold the company that didn't- that original plan didn't happen, but we did always run the company with a profit in mind. We wanted to bootstrap and we wanted to be profitable, so if it didn't work out that Intuit would come in in a year or two and take us over that. We had built a strong profitable company that eventually would be of interest down the road and that's really a big question. In fact, I was just on a call yesterday. I sit on a board of a startup that I'm. I'm invested in and we had that exact conversation because in their situation they are not bootstrapping. They're going out and raising funds and trying to make that decision of when do you push that pedal down and are you trying to be a profitable company or are you trying to be a growth company? And it's a fundamental question that businesses have to ask themselves.
Ryan Tansom: Can you. Can you peel that back a little bit further? Because I think that you just nailed something that is so ambiguous out in the marketplace where there's all these people raising money, you got the show Silicon Valley, you got all this stuff where people are raising money and that... So I think as you articulated, very interesting. Are you trying to grow or are you trying to be a profitable company? Explain how that will impact your decisions of what you're doing with your business.
Cammie Greif: Well, I think that, you know, in our situation it meant that we didn't spend money on a lot of things. We worked our first offices. We had three different offices, um, over the period of time. So we moved twice. The first office was in an old mortuary. We were on the second floor of this old mortuary. And I tell you what, those ceilings on the first floor must have been 20 feet tall because that line that steps up those to that second floor with the workout. And there were caskets in the basement still leftover from, because the mortuary still owned the building. But they had rented it out so, you know, these were really humble beginnings and we bought $25 desks from at a second hand place. Everybody brought their own computer and we just did everything on the cheap. If you walked in, there would be nothing but family photos on the wall, you know, we just, we didn't spend money to spend money and be flashy.
Cammie Greif: We, um, we're working hard and wanting to be profitable and we worked a lot of hours and could we have hired more people? Probably not without cash, but um, but yes, we could have used those people very easily. So, you know, when you look at that and you try to run it on the cheap, you may not be growing quite as fast. You're not going to be running as many ads. You're not going to be, you know, if you're a B2B, you're not hiring as many sales people, but you're a profitable company. And it really depends on what you're looking for. First is the, you know, looking at trying to grow and you don't care if you're profitable or not. It's all about the number of customers that you gain and how fast you gained them and it's a, it's a question you have to ask yourself because there are buyers in both buckets.
Ryan Tansom: Okay. So there's a couple things I want to peel apart into this because I think it is a good context for a couple of other, um, steps in your journey and I think it's something that a lot of people struggle with, Cammie, where you know, the biggest takeaway that I'm hearing it. You started with the end in mind. You wanted to sell your business and you will get a bunch of CPAs and developers that we're looking at profit and I think there's so many entrepreneurs that don't run the business to sell it. So even though you were looking at Intuit, you were trying to be profitable and explain, you know, even if you do, even if you pick one of those different things, explain when you said there's buyers for both, what would you know, what impacts the different types of buyers and like how that would make, how that would impact the decision of how they're growing?
Cammie Greif: Okay. I want to step back one thing that you might have to remind me of where I'm going, but the thing I want to get back on is even if you're not looking to sell, even if you're looking at this as a lifestyle business and you want to pass this down to your children, what better way to do that than to may have a profitable company and have nice cash flow coming in your pocket. Right? So, so there are some benefits there, but you wanted me to talk a little bit more about the different types of buyers, right?
Ryan Tansom: Yeah. Just shedding some light on the different types of buyers, but then also like you know, your guys maybe not even necessarily that, but like your mindset on you wanted to sell the business and you didn't know when necessary when it took you 14 years, but you were building it to sell it and you know, how were you, how, what was the dialogue between you and your team? Was it landscape? What's happening in the landscape? Were you always talking about buyers and the profit? What were the main things that we're driving the direction and the dialogue?
Cammie Greif: Well, I think after, after Intuit didn't buy us after the first year or second year, we kind of settled in and said, okay, well our quick flip isn't going to happen, so what do we need to do here to grow the business to get it to a point where we might have a little more interest from Intuit or Block or some other strategic partner. Right? So at that time, so this was in 1998 when we started the company. We went through the 2000 bubble and we're on the other side of 2000 and you've got a lot of players battling it out, mainly like a yahoo, Google, Microsoft, all trying to figure out where they're going to be. In fact, Microsoft even, um, a lot of people don't know this, but they came out with an online tax product in about 2001 or two. And I can tell you why they flopped because Microsoft is notorious for, but at least at that time for kicking the release date down the road, kicking that can down the road. With tax, you can't do that. If you don't have that product ready to go when tax season starts, January 15th, when the IRS starts taking e-files, you're sunk. It's a very commoditized product and if you're not ready, there's another product that will be and people will move to it because they want their tax refund as fast as possible. So anyway, so back to the landscape. There's all these companies that are trying to figure out where they're headed and they're all about customers, right? And number of customers and growing that piece of it. So after we got through the 2000 bubble, we really sat down and said, okay, we're going to need to grow this if we're going to sell the company. How are we going to do that? And so we really kind of focused. We still kept the profit margin in mind, and that was still forefront. But we started looking at how can we grow it? So in 2000 we added the online, so 98, 99, we had desktop in 2000 we added the online and then just really started focusing on growing that online business. So does that answer your question?
Ryan Tansom: Yeah, it does. No, I think it's just really interesting because you're, you know, thinking about the buyer's landscape, thinking about who would potentially buy you I think is a constantly a good exercise and a lot of people don't take the head out of the sand to think about that stuff because it impacts the strategic decisions that you're doing. And so was you had mentioned that acquiring customers, the online, and I know there's some other interesting things that you guys did, was that all those decisions were, it sounds like there were precipitated because you knew eventually you want it to sell this to certain people.
Cammie Greif: Yeah, there was no question that we going to sell the company. We were not building this for our children and grandchildren. This was the four of us set out to make some money and you know, and maybe people think that's being very greedy. But, um, that was, that was our plan and that's what we wanted to do.
Ryan Tansom: How did the online play help? Was it acquiring customers, was it acquiring more profit? Um, and then I know there was a, and I don't know exactly where in the journey that you started getting knocks on the door or you went out and sought out the private equity, you know, what were some of the steps in that part of the process?
Cammie Greif: Yeah. So, um, so in about 2002, we, through different partnerships and advertising that I was doing, I got- I had a few people reach out to us saying, you know, why don't you come and talk to us and maybe there's some sort of synergies and partnership, you know, all of that that we can do. And it got us thinking that, yeah, maybe now it's time to go ahead and start to look at selling the company. And so we reached out to an investment broker, just a small regional investment broker and started going through the, through the steps to take the company up for sale. And we ended up, we ended up, I think it was probably 2002 when we did our first process. So when I talk about the process, basically you get your investment banker, um, they do a bit of due diligence on you write up a, a, a deck so that they can send it out and then if you get any- and then there's interviews and presentations and if you finally get to somebody, then a definitive agreement, then you have your due diligence process that you're going to go through.
Cammie Greif: So we started with um, getting some, some of our information together and a proposal and sent it out. And the thing about taxes, you are so busy from about November until April, you can't pull your head out of the sand. And then April 15th hits and you need about two weeks to just detox. And then you got to get your financials together. So by the time you can really start a process in ernest is about June 1, then summer is never good for investment banking. And so really it doesn't kick off in earnest until about August when kids go back to school.
Ryan Tansom: And then you got like three months.
Cammie Greif: Exactly, and then we have to shut it down. So it took a couple years before we were able to really get something in place and we had a lot, you know, a lot of different people looked at it, we sent it out to a lot of strategics as well as private equity and it turned out in late 2004 we ended up selling to a private equity firm called TA Associates out of Boston and Menlo Park or their main areas and we, we ended up selling the majority interest to them and that really set the stage for us to basically take some chips off the table. With tax, you have that very short selling season. So it's not like if something doesn't quite go right, you can make a lot of adjustments and you got the rest of the year to make up for it. This is if you aren't going in with all cylinders running at top speed at the beginning of tax season, you can make a few tweaks, but whatever your plan is, you pretty much have to stick to it for the for the season and make or break. So we felt like we were playing Texas Hold 'Em all-in every year and that was stressful so it was nice to be able to take some of those chips off the table, put it in our pockets and continue to run the business.
Ryan Tansom: So the process that you went through, a curious as the dialogue with your, you and your partners when you. So strategics versus private equity, all of these different buyers have different intentions and there's different terms and conditions and how like. So when you guys were thinking about quote unquote, you know, taking it to market with the investment banker, where are you guys like we all want to walk. Did everybody have different intentions? Was there a certain dollar amounts that everybody wanted? I mean I just think there's a lot of that lot entrepreneurs don't know what they don't know or don't know what they want. So all those different things that you saw results in different outcomes. So how did you guys work through that and did you learn through the process or did you have intentions when you're doing it?
Cammie Greif: Well keep in mind we had, we, we did this for, for several, you know, to, you know what it, it's getting so long ago, it's hard for me to remember exactly but two or three years that we went through a process. And each year our price kept going up because our revenues and bottom line, were growing up, were going up as well. So our expectations maybe the first couple years were a little bit, you know, maybe a little high. We also... Okay, so the other thing that happened, so the first year, nothing. It must have been three years. The first year, nothing happened. The second year, we actually had an offer from TA, but we were, it was a minority interest and the problem that we saw is we were an S-corp company and we were taking really nice S-corp distributions and with going to tea, which was a private equity, we would have had to convert to a C Corp so we would have lost those nice S corp distribution and for the price they were paying and the fact that we were losing our S-corp distributions, we just, we said no and this was late in 2003 and we just said we can't do this.
Cammie Greif: So we shut down the process and everybody went their separate ways. In 2004, we went back out for the process and talk to other people again and uh, and then ended up settling on TA, but we went back to them and said, we want a majority interest because if we're going to lose these S-corp distributions, we want to make it worth our while to do this, this transaction. So that's all stuff that you really have to kind of think about it, sit down and what is that cash flow, not only for your company, but with that cash flow into you as an owner and what's going to happen with some of those, some different types of transaction. Now the other thing with private equity that people have to remember is private equity will sell your company, your company will be sold again. There's no getting around that. So it's a situation where they have funds and they have to close these funds out, which means they have to sell that your company in five to 10 years typically. So that, that's another piece that whoever the people you are you have coming into your company as part of this TA or as part of this private equity, they're temporary really. But you're going to have somebody else in the end.
Ryan Tansom: Well, and that's if you stick around until the end. Um, I think there's a lot of people that struggle with, you know, maybe choosing the wrong private equity because they didn't do their due diligence on management style, the people, you know, all that kind of stuff. You know. Did you guys do some due diligence on them? Because again, those, that scenario that you structured is so different than selling to a strategic where you guys might all walk away right away. So you guys all want to stay in the business and continue working. And, and how did you end up picking TA compared to some other people?
Cammie Greif: Well, primarily ta gave us the best price, right? Um, so that's always a factor. But the other was we, before we actually sign on the dotted line, we, uh, we did do some reference checking, so we checked with some of the people that had that TA had purchased before. Now I'm, I think you and I had a little bit of this conversation where you suggested, you know, even talking to people that had sold after, but that is a great suggestion that not only talk to the people that they may give you as references, but also talk to people who have gone, who have been bought and then sold.
Ryan Tansom: Who can, who can liberally talk crap about someone and not have a payment get pulled.
Cammie Greif: Exactly. Yeah.
Ryan Tansom: So you, so you kinda get- continued the journey then. Did you, did you guys all want to stay on? Like, you guys are all still had energy and passion for the business or did, were you kind of up in the air and now that you mentioned you have five to 10 years and you kind of walk through how you guys ended up getting sold again, but were all, all the for the partners headset as far as enjoying the industry and the business?
Cammie Greif: Well, we all said know we'll stay for a couple of years. Um, as long as it's fun. I mean that was our attitude in that was our response back to TA is we're not walking, we're sticking around besides we still, I mean the company was, you know, a nice sized company and there was still. We still had ownership and risk if we walked away. So we wanted to ensure our investment was going to continue on and so we stuck around. And we ended up... I mean all of us stayed until we sold in 2012. I was the only one that actually walked in 2012. The other three stuck around longer.
Ryan Tansom: So they're obviously really enjoyed the, you know, as far as benchmarks or amount of employees or whatever you're willing to disclose around the time of the private equity. And then. So that was in 2004 you said? So they held it for what they held it for eight years. Wow. That's a little bit longer than normal, huh?
Cammie Greif: It is, it is. And you know what, I wish I could tell you how many employees and what the revenues were at that time, but I just can't remember.
Ryan Tansom: Well that well that's just totally fine because what maybe going into the next eight years, you know, what was for you guys to all do that for eight years and you guys had to, they came in with majority and they were, they were the final decision maker and all this strategic plans and all this stuff where additional funds were getting invested?
Cammie Greif: actually. So. So I just want to make a couple of things clear and, and I'm I'll guess around where we were, we were probably around 20-25 million in revenue. We probably had about, oh I dunno, 30 employees roughly. Probably 30 or 40 is where we probably were at at that time. But as far as TA, so they made an investment and that cash came to the owners. [Ryan interjects: Got It.] That didn't go into the company that came to the owners because they were buying our stock and for moving forward. They really were hands off now we were growing. We were profitable and so you know, things were usually pretty good except for actually the first year I'll now go back to that, but they were fairly hands off. They did want us to hire a CFO because Lance and I were basically sharing the CFO position and they wanted someone in that position and they got a little pushy on wanting us to hire somebody outside of Cedar Rapids - Our company's in Cedar Rapids, Iowa, and they wanted east coast, west coast talent and we interviewed and we went down that path and in the end we ended up hiring somebody that we had worked with at Parsons Technologies as our CFO.
Cammie Greif: So you know, and they also wanted us to use a high-powered pr firm which never really worked out. And you know, just some of those kinds of things where we ended up spending more money than we normally would have, but they kind of wanted some of the those pieces done. And so we, we did them.
Ryan Tansom: Got it. So for the rest of the stuff, you just kept on your growth path and the strategic path that you guys had already been doing?
Cammie Greif: Yes, we really did. It was pretty much um, keep moving forward. Now I had mentioned that there was somewhat of a challenge that first year and that came in with one of our competitors was also looking hard at the company as a strategic buyer. And as hard as we try to keep our information close to the vest and not sharing, they ended up getting a key piece of information on our marketing that they thought would put us under. And it nearly did, actually. And it was all centered around the Free File Alliance, which is a government alliance with industry. If you want to know more about the Free File Alliance, you can check it out. But needless to say, we were making some. We had to present an offer to customers for free. He filing on the IRS.gov website and those offers could bury and each company of the 20 companies that offer tax software at the time back in 2003 and four and five would make their offer.
Cammie Greif: Most of them were offering free e-filing to come to consumers who had an adjusted gross income of 35,000 or less. We were, we started on the higher end and then ended up saying free for everyone. Well, that free for everyone grew our market share on the IRS.gov website, which our competitors saw that and then decided that they would do free for everyone. And so that eventually that first year they came out free for, for everyone on the irs.gov website, which slowed our growth on the irs.gov website. So that first year that we're, um, by or had TA investment, our growth wasn't what it, what it had been. And so it really caused us all to reflect and say, what can we do differently? Well, basically we were building the brand on the irs.gov website versus our own brand because we are making that offer. So we decided to do that, that free filing on our website and um, that move right there... number one, it would have been difficult if we hadn't already taken money off the table, right? If we didn't have the TA investment, it would have been difficult for us to do that.
Ryan Tansom: In what way?
Cammie Greif: Because because we were charging for that e-filing on our website and it was not an insignificant amount of revenue. [Ryan interjects: Got it.] So when we made that choice, we, we ran the risk of losing that revenue, but we made it up with more customers and more cross-sell and upsell revenue because it was free for the federal, and then you pay for your state or you paid to upgrade to a deluxe version.
Ryan Tansom: Did TA have any issues with that?
Cammie Greif: You know what they, we, we ran the numbers and we showed them what we thought it would be and they, they understood that competition is a challenge and that when you're going up against Intuit and H and R Block, you've got to really big companies that have deep pockets and you need to be a bit scrappy and try something different. And they, they understood that and they gave us the freedom to do it. So between them saying, "yes, go ahead" and the four of us feeling like we should do this and there's not as much risk for us because we've taken some off the table. So it was a win-win for both in that respect. Um, and it also was a win for the company because that next year when we did that, we grew - we didn't quite double - but we grew double our market share and stole tons of market share from Intuit.
Ryan Tansom: You started getting that thorn jammed in to decide like you wanted to. Because I know there's a lot of this going on in the marketplace now with the SaaS products and all these different other things. Amazon being a huge example of give certain things away and then make money on the back end. You know, were you able to maintain the profitability as you're giving away free e-filing? Because I think there's a lot of companies that, you know, they wouldn't do what you guys did because A) they don't have the private equity firm or they're to use to the cash flow or whatever it might be and they choose the slow death over versus innovating. So were you able to manage and balance the growth with the profitability?
Cammie Greif: I think anybody's trying to make that decision really just has to run the numbers. And it's all in what are your conversion rates when you start looking at going from your free product to your paid, is your product better or is there some hook that's really going to make a difference? For us, our deluxe, we included importing from prior year, so that was something that people- So when we looked at tax, they would start with our free version year one, but by year two a sizable amount of them will upgrade to the delux because of that import. But at some point in their life, something's going to change. Some life event is going to happen that's going to cause them to second guess and say, I think I need a little bit more guidance in the delux that's available in the deluxe product. Which we had a whole section on life events and how do you handle these life events that gave the people the confidence. Now could you do all of the same forms and everything else in our free version as our paid? Yes, you could at that time. I think now the new owners have changed some of that, but at that time, it was exactly the same forms in both products. And you were able... but you had more help. And so that's the kind of thing that you have to think about is what are these hooks and what is going to cause somebody to upgrade and cross sell and what are those conversion rates and they're pretty good, you know, it served us very well so I'm a proponent of it.
Ryan Tansom: As you're talking about building a valuable business and these different offerings that you have in the cross-selling. You did... I know, I doubt in your space there's contracts, but I'm, I'm assuming the repeat customers were the metric that you guys measured, did you guys have stats on how many people were repeat and um, and that stayed with you guys or upgraded?
Cammie Greif: Yeah, it was surprisingly low for first year and we got better at it. I think early on it was about 50 percent of first year would come back the second year, but we improve that to well over 60 percent, around there. But if you looked at... So I'm thinking, you know, I'm going back in my mind and maybe around 2000, I don't know, five or six statistics. If you came in and it was about 55 percent for year to year two, the year two to year three was better. Year three to four was even better by the time you got to about year five or six, you're at 95 percent. [Ryan interjects: Wow.] Yeah. So it's just the more they use the same product, that much better retention rate you have.
Ryan Tansom: As you guys are, you know, in this eight year journey, what was the conversations like with TA knowing that that's the goal to sell the company again and you're constantly looking at the marketplace as things are changing and Intuit's out there and Turbo Tax and all that stuff. What was the end goal and how often did you talk about it? And I know there was a couple interesting hiccups along the way that I'd love for you to dive into.
Cammie Greif: Sure. So basically we talked about it every year, every year at the end of tax season we would say, "is this a good year to sell or not?" And we ended up pitching the company probably another four or five years at, you know, at different times. So we, and I probably should have sat down and thought through this a little more on the whole history before we had this call. But in my, you know, aging recollection here, I would say we probably waited a couple of years and then started pitching the company again and we went out to strategics and sometimes we would do a very big, broad overreaching, send it to everybody and their brother. Um, and then sometimes and then other years we would say no, just send it to a handful. And if we get some, some interests out of this handful, then maybe we'll broaden it a little bit more. But as it turned- and that, let me just say, when you do start a process of selling your company, that takes a lot of time. It takes a lot of time and it's not something to go into lightly and you need to make sure that your business can continue on, even though you're in a process. And that's a challenge that I don't think a lot of people think about. You know, they think, oh, well it's time to sell the company. Let's start a process. That process is going to suck a lot of your time.
Ryan Tansom: So I think that's a really good point because I've had a couple of other people that have mentioned that and they did not have a private equity backing, you know, additional partners, strategic help. So they were like, they divided and conquered do duties, whether it was during the process versus doing ops. How did you guys do that? Did you have additional help with TA, um, along those lines? And did they bring other advisors to the table and how did that whole structure work with you guys as a team and the TA team?
Cammie Greif: Well, the TA team did bring some help, right? So they helped in some of the early stages. They helped us, the left investment bankers, we basically were using the investment bankers that they wanted to use, um, which changed. So every time you change an investment banker, you're having to reeducate those investment bankers, right? So that takes time. Um, and then the investment bankers usually provide some additional help on some analysis and how to present and they really put the deck together for you. But yet those are all things to think about. And for us, we really sheltered the rest of the company and the four of us primarily did most of the pitching of the company. It then be in the, in the last few years, it became very clear to us that if the four of us were not highly committed to stain, that we probably were doing a disservice by doing all of the presentations ourselves. So then we started bringing in a couple from the next layer that were going to back fill us as part of our succession planning that they started helping out with and doing some of those presentations. And in fact the last year, I think I was involved only on the back end and not any face forward, um, presentations. And so that's another consideration. If you're nog planning on sticking around, you better get your next level of management in front and center of anybody that you're pitching your company to, because they're the ones that are going to have to develop the relationship.
Ryan Tansom: So, along those lines.... did you guys- I think a lot of entrepreneurs freak out because they're like, well, they're going to want some of the pie. And how do you deal with that? So was there a phantom stock agreements are deferred comp or stay bonuses or equity or? How did you guys structure that to get them jazzed about what you guys are doing?
Cammie Greif: All along, when we, when we originally started, we set 12 percent of the company off to the side for our employees. So the employees that were helping us out had a vested interest. Some of it was phantom stock, some of it was stock options, those variety of things. But they were incented to do that and I think we may have even offered a small bonus, you know, if we got the deal done, but it was primarily the stock that was the driver.
Ryan Tansom: Got It. With TA, I'm just kinda going back a couple of steps, what was their portfolio like? Was there any strategic buyers that they knew that they wanted to sell it to? Was it just for the cash flow or is there any other strategic things that they were doing with your company?
Cammie Greif: It was primarily the cashflow. It really was and I think that they thought that they could grow it and that we had some very viable strategic partners, especially Intuit and Block as well as others. You know, like I said at that, at that time in 2004 when we are selling, you had a lot of big players that we're trying to figure out what they were going to do. And we had um, had some of those looking at us. They didn't choose to at that time to make an investment. But so I think TA saw that there was not only the profit margin but some real clear strategic partners or strategic buyers that could happen in the next...
Ryan Tansom: You had an interesting first failed round of a strategic buyer, didn't you?
Cammie Greif: Yes, we did. In 2011, we actually had a definitive agreement with H and R Block to buy TaxAct. And there are some parameters that make a determination, but depending on these parameters, you may have to go in front of the Department of Justice and / or the Federal Trade Commission to determine if there's anti-competitive behavior or the potential for anti-competitive behavior. And that is called HSR, which is short for Hart Scott Rodino Act and we were subject to that. Primarily... some of the parameters are the price as well as publicly traded companies get involved, et cetera. But anyway, we were subject to that and the Department of Justice took exception to our transaction. There are several steps that you have to go through and I won't go into detail, but it kind of goes back-and-forth on we supply them, the Department of Justice, with information and they ask for more information to decide if they're going to move it on. Well, it ended up moving all the way to the end where the Department of Justice said, no, you are anti-competitive, you can not do this transaction. Now at that time Intuit was number one, was about 70 percent of the online market.
Cammie Greif: We had 15, Block had 13 and the rest was about, you know, the other couple of percent. So we were- number three was buying number two and they still said- and Intuit clearly had the majority, but they felt that that was not good for the consumers. So when they say no, they basically put an injunction on your transaction and if you still think that this is a go and you want to do it, then you have to go to court. So we talked to our attorneys, walked talked to theirs and we all thought that it had some legs so we fought it and went to federal court in DC and up against the Department of Justice and we lost. So millions and I mean millions of dollars of attorney's fees later. Here we are sitting with no transaction, no deal.
Ryan Tansom: Just... I mean what was the, what was your guys's stress level when that was going on?
Cammie Greif: Quite high because you know there were depositions, there was sitting on the stand answering questions. It was very, very stressful.
Ryan Tansom: So Cammie, I think when you said that a lot of people don't realize that when they go to the, into the process of trying to sell their company that it takes a lot of time. I don't think most people are thinking that they're going to take the Department of Justice to federal court when that as part of that process. So...
Cammie Greif: No, that's true.
Ryan Tansom: How was the company running like on its own where you guys kind of more just shareholders at that point to be able to manage that?
Cammie Greif: Well, the four of us still went to the office every day and we still had some direct reports but we had awesome direct reports that were really part of our succession planning that we had started putting in place with TA's assistance, right? TA was really pushing you need the CFO and do you have people in place behind you? So you know, from that perspective they really encouraged that succession planning and when we were going through these, the, the HSR issues, we, we felt confident that we had good people in place to run it. Now, we still kept a pulse on it and we still, you know, like I said, we're going into the office everyday, but really our conversations in the doorways at that point in time were primarily centered around the lawsuit rather than what was happening in the company to be honest.
Ryan Tansom: So when the, when the lawsuit, when you got the final verdict, what was the next step and then how long was it before you guys took it to market again and sold it?
Cammie Greif: Well, that was late in 2011. So it was, you know, what, stand up, you know, put your game face on. We're heading into another tax season, sowe didn't really have a lot of time to analyze it or think about it. So it was okay. That's just one more thing that has happened. One more piece of our journey and we moved forward and then the next year, you know, starting in May, June, we put the company back up for sale and then ended up selling to Info Space at the end of. Actually, you know what, I have my years wrong. It was 2010 and then 2011 because we closed with Info Space January of 2012
Ryan Tansom: And they were... Info Space, they were a public company, right?
Cammie Greif: Uh, yes. And they have since changed their name to Blue Cora.
Ryan Tansom: And what was the, how did that whole, first of all, what was it like selling to a public company versus private equity? I mean, that's got to be extremely different.
Cammie Greif: It was a bit different. No- Actually, probably not a ton. The amount of due diligence that we needed to do wasn't that different than what we had done with, with TA or with, with Block. But there again Block's a publicly traded company. Right.
Ryan Tansom: So when you guys restruct on the transaction, did you guys have to have stock invested into the public company? Because there was a um, a woman on the show here that she said, she said actually being a public company was harder than exiting the first time. So, um, I don't know. Was there any kind of, how was the deal is structured for you, for the you as the owners? Was it just totally walk away or did you guys have to have reinvested shares?
Cammie Greif: It was all cash.
Ryan Tansom: That makes it easy.
Cammie Greif: Now. My partners that stayed on ended up having some employment agreements that would have, you know, there was options for, you know, for some of the... Actually I think all of the employees. Some or all the employees, I'm not exactly sure, but as far as having to have any piece of the company tied up in their stock, we did not have to do that.
Ryan Tansom: Was there any reasons that you could pinpoint of why there was an all cash offer? Because I think in the context of my question is that you've probably seen, especially with the PE route, there's a spectrum like, hey, here's the dollar amount, but you don't get any of it and here's all the terms conditions, employment agreement, stock options, that stuff. Was there a certain things that you were doing in the business that we're so well, which is why you got the all cash?
Cammie Greif: Well, you know what, I'm not exactly sure. I would venture to say that this was what... Well first off, it was what we wanted as the founders, but I also would venture to say that TA was behind wanting it all cash for their fund. They couldn't reinvest into a publicly traded company. [Ryan interjects: Got it.] That's probably more of it than anything.
Ryan Tansom: And I, yeah, I know for disclosure purposes, I'm just kinda curious, between the eight years between the, the TA purchased and that, what, what was kinda the growth or any kind of numbers are benchmarks that you're willing to disclose?
Cammie Greif: Well, you know, when we sold, we were roughly 70, 70, $75 million dollar company and um, and when we had... And then so when we were with, when we were still to TA, I'm thinking it was about a 20 to $25 million dollar company. So we saw some pretty significant growth in that eight years.
Ryan Tansom: That's amazing. And I, and the, the, along those eight years, were you able to continue hitting the profit margins that you wanted along the way?
Cammie Greif: We did, it went down slightly after we sold to tea, but that was primarily because they were encouraging us to start building in this next layer. Right? Really see, put in place some succession planning. So it went down slightly, but you know, roughly we were pretty, we were a very profitable company. The nice thing is that we were able to bootstrap from the beginning, so it was, it was a, a nice business for TA to buy.
Ryan Tansom: When, uh, when was it Info Space, when they buy it, was it a multiple of EBITDA or was it multiple of revenue or client? I mean, what were some of the metrics that they use to value the business?
Cammie Greif: They did use a multiple on a, you know, what, you're really stretching my memory here. I'm thinking it was a multiple of revenue.
Ryan Tansom: That's interesting because I think there's so many other ways to value companies these days and when you get into the software space, too, there's a lot. You see a lot more of the multiples of revenue versus cash, which is just interesting because you just don't know how different offers can be.
Cammie Greif: Yeah. And you know what, now that I'm, I'm sitting here trying to figure this... I'm thinking it was probably more multiple on EBITDA.
Ryan Tansom: Was there anything... so you walked away after you sold. Were you, I mean as you probably were thinking about it, because that's why you're bringing some of the key employees back in, what was planned for the next chapter for you? I mean, did you just, that was it and you handed them the keys after the purchase agreement was signed or? How did you feel when you inked the deal?
Cammie Greif: Well, I didn't walk away until I got the cash. My decision was I- it had been 14 years and I basically was burnt out. I mean there's no way other way to say it, but I was burnt out and I also was looking at my first grandchild being born in, in six months after I walked. And it was just kind of a transitional period in my life where I just needed to be my own person and not the TaxAct co-founder for a little while. And so what I ended up doing is we had, my husband and I had short- had recently moved back to my hometown and uh, we, we both were farm kids and my husband farmed when we were first married and then left for me to pursue my career and my passions and so we came back and he went back to farming and I have just really been much more focused on giving back and I helped build a building, I general contracted a building in town for youth development and I just really am more about giving back right now than anything else. Although I really do miss the people and I miss some of the, you know, watching the numbers and making changes and seeing how that effects from a marketing standpoint.
Ryan Tansom: And I think you and I were talking it's the game, right? You guys ran one hell of a company and the profits and the numbers. And you get to see feedback on how well you're doing. And is there a, is there ways that you're, you know, able to get that, get that fix these days?
Cammie Greif: I do have a couple of different ways. One is I do a lot of mentoring of startups and there's a startup accelerator not too far from where I live, that I do spend quite a bit of time down there mentoring the startups. I also, um, have, have... it's become kind of a hobby of mine to look at companies for sale on a variety of websites, you know, for the companies that are in sort of the half million to a million EBITDA and just really kind of drill in and look at the numbers and so I get a little bit of that fix.
Ryan Tansom: We should throw on a different episode down the road where you and I go pick a couple of companies and financials because I think it's so interesting when these entrepreneurs that haven't sold before to go look at the numbers because you're looking at it from a buyer's perspective is so interesting and it would almost be fun to just hear your commentary as you're looking through them about what you're thinking, what they're doing right, wrong and all that kind of stuff. Because it's amazing how a doing that just gives you a totally different perspective.
Cammie Greif: I think that'll be a lot of fun and also you know what would be maybe fun, too, is do another segment from what the seller is thinking because you know, I'm a CPA so I am very, as much as I want to get excited about, my numbers are awesome. I also understand patterns and trends and I don't know if all sellers understand those. That for me, I really look at trends and if I see a downtrend there's going to be a good explanation or I move on to the next.
Ryan Tansom: There's this one that I saw and it was like three years of slightly down trending and then the projections were obviously trending upward and like really who's going to believe that?
Cammie Greif: Right? But, but you know, maybe they have some really good answer. Maybe there's a new product that's being released or maybe, I don't know. There's so many things. New regulation that's coming out, it's going to totally flip their business upside down and those are the kinds of things that, you know, maybe maybe being hardcore just looking at those trends isn't fair. But I don't know. I think it'd be interesting.
Ryan Tansom: And I think you know, what, you've done such a good job as is looking at the marketplace and knowing where your business could potentially be sold to and why. And it's always in those will help you connect the dots for the trends, too, because you understand the, how everything is interwoven.
Cammie Greif: Yeah. I'd like to believe that that's the case.
Ryan Tansom: So, Cammie, as we're wrapping up here, you know, I loved the whole story of the journey and everything, you know. Is there one thing along that way that you, that we talked about that you want to highlight for the listeners or maybe something that we, that we missed that you want to leave them with?
Cammie Greif: You know what, starting a company and then taking it to a sale is- it is a thrilling ride. There's everyday, there's ups and downs. And let me just say it is worth it in the end. Yeah. I, I really wouldn't have given that up for anything.
Ryan Tansom: I love it. I think that's an awesome nugget to leave everybody with. If there's a way for our listeners to get in touch with you, find you online, what would it be?
Cammie Greif: Absolutely. Um, I'm out on LinkedIn, Cammie Greif and um, if you have questions or thoughts, feel free to reach out.
Ryan Tansom: Thank you so much for coming on the show.
Cammie Greif: All right. Thanks Ryan. You have a great day.
Ryan Tansom: Man. I hope you enjoyed that interview as much as I did with Cammie. She and her team did some amazing things. Not only is tax season stressful in itself, but to be able to do the tax season, build a business, take on the different challenges that they did is, is nothing short of amazing. I know the couple of big things that I took away from Cammie's interview is how they utilize the private equity firm to de-risk and then use that firm with the right intentions and the right terms and conditions and the right control to take their business to the next level and how they were able to do things that they wouldn't have been able to do had they been 100 percent owner still. It sounded like an amazing relationship that they had with them and they wouldn't have been able to grow and to innovate as much as they would have without the partners.
So I think how they approached the multiple step transition and how they went through with the intentionality of selling their company from the very beginning is something that everybody needs to take note. Because if you know that, hey, you know what? I want to sell to H and R Block and you're going to strive towards that. What's the worst case scenario? Will you sell to a private equity firm for a bunch of money and then can continue on your journey.
So I think having some set goals of who you want to sell to and why with a timeframe in line, it doesn't necessarily mean you have to do that, but it helps you keep your ship in order and it helps you focus on the fact that the goal is to make money and to strive and to grow in certain areas because of the end goal. And that should back in all the different strategic goals that you're accomplishing. So I really hope you took some serious gold nuggets out of the interview with Cammie and go onto iTunes. Please give us a rating and I'll see you next week.
Written by Ryan Tansom
Ryan runs industry-specific podcasts on his website which pertain to mergers and acquisitions, and all the life lessons he wish he had known then. He strives to bring this knowledge to his listeners in a way that is effective and engaging by providing new material each week from industry experts.