‘We were the biggest power user of our own system’: Wave’s Kirk Simpson on building and exiting a fintech startup

The following was produced by Tearsheet Studios. We worked with Wave, a financial software company for entrepreneurs and small businesses, to create a three part podcast series on what micro businesses and solopreneurs really need now from their banks, financial service providers, and financial software.

One of the things that’s got me really interested in fintech was hearing founders’ own stories. What got them into the business. Why some left high paying jobs to throw their hats in the entrepreneurial ring. A ring that can be really hard, confounding and a roller coaster of emotion. Many of them started their business out of a deep connection to the problem they’re trying to solve. And when you trace back through their stories, you can get some insight and apply it to your own business, practice, or department you’re trying to build. 

In 2009, Kirk Simpson founded Wave, accounting software for entrepreneurs, micro businesses and solopreneurs. He didn’t have an accounting background -- his co-founder did -- but he did have experience building and running small businesses. Also, he absolutely wanted to leave working for the man, which helps fire up the motivation to change how things are done. To stir the pot. To mix things up and break through the status quo. 

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The following excerpts were edited for clarity.

Kirk Simpson, Wave: Hi, my name is Kirk Simpson. I'm the co founder and CEO of wave. We're a software and financial services company that serves small businesses.

In a lot of ways, starting Wave was related to just being absolutely sick of working for the man, to use an old expression. James Lochrie and I founded the business in 2009. We got serious about it in 2010. I was working for a media company and my wife was an equal breadwinner. We had two young kids, a really big mortgage, and she was pregnant with our third. And I was selling her on an everyday basis that it would be a really good idea for me to quit my job and start a tech company. And I don't know what gave her the conviction to say yes, but she said yes. And off we went. And 10 years later, it's been an incredible journey.

It has been an incredible journey. After launching Wave as a free accounting software, the company eventually exited to H&R Block in 2019 for $405 million. Now, there’s ten years between when Kirk quit his job until now. I asked him about the ups and downs and the pressure of starting a fintech firm while building a family.

Kirk Simpson, Wave: Yeah, it was a stressful time. And I think many entrepreneurs and startup founders will recognize themselves in it. I think you've got conviction, and you've got belief, and you know that you're going to work like a dog to try and bring it to life. I kept some consulting on the side to give myself a six or nine month window. But it was scary and with a family. I think one of the reasons why it's great to start a startup early on in life is because that family dynamic does bring a completely different aspect to it. But when you've got conviction, and you know that you just got to take a chance, I think sometimes it's just worth taking that chance.

I love hearing founder passion. Sometimes, it makes all the difference between creating a successful company and flaming out. It can keep you going when things get tight and stressful. Ensuring that the founders have enough cash flow to keep them going is also an important and frequently underappreciated part of building fintech firms. Also, do you take money from friends? Can you afford not to?

Kirk Simpson, Wave: We were in a really fortunate situation. I wasn't able to put any money into the business, but my co founder was, and so we did have a bit of capital to start. And that gave us a leg up to start the build. One of the challenging moments very early on (and we've had many of them) is in the summer of 2010, a couple of our friends wanted to invest. And I think that is a really interesting line in the sand that you've got to make a strong determination on whether or not you want to cross that line. We ultimately had four of our friends put in money. That dynamic was difficult. They were incredible investors, very patient and not overbearing, but you do add a lot of pressure onto yourself when you make that kind of decision. It definitely added a new dynamic into the fold.

After funding a company or finding quick wins for cashfow, founders need to get to work. For Kirk and Wave, splitting co-founder responsibilities was relatively easy. Kirk was an entrepreneur and took on the business aspects while his cofounder had accounting software domain expertise. They began building the company.

Kirk Simpson, Wave: It was pretty obvious. My cofounder had a technical background, but he didn't have it in modern programming languages. So we needed to hire engineers, right from day one, but he had the domain experience, and he had enough technical knowledge to be able to give some guidance to the engineers. For me, I kind of knew that I was going to be in the fundraising, telling the story, marketing-type area. I do think that it was pretty easy to to draw those lines, but we did decide early on that we would make all decisions together. 

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Sometimes co-founders, in an effort to be completely equitable, run into some challenges. It’s how they emerge from those struggles that can point the company in the right direction for the future. 

Kirk Simpson, Wave: I was named the CEO mostly for fundraising purposes. And that did create some difficulties downstream. Oftentimes, when you have a cofounder relationship where you're trying to make decisions equally, when things get tough, it's challenging and sometimes you compromise and you make a compromise decision versus the best decision. And I think we found that sometimes. James left the day to day running of the business in 2015. He stayed on the board and was very supportive. In some ways, there was some deliberation that happened through that process to have only a single point of decision making. And I think if I look back on it, we probably should have made some tougher calls about roles and responsibilities. And who was the ultimate decision maker.

As Wave was building accounting software for entrepreneurs, I was curious about how Kirk and team handled their own finances in the beginning. Indeed, they did eat their own dog food.

Kirk Simpson, Wave: The ironic thing is we were building a fully featured double entry accounting system. So obviously, we wanted to use our own software and put it through its paces, and sort of learn about its pros and cons and deficiencies as a user. It was great for that. But the company grew really, really quickly. We raised $5 million from CRV in 2011. And then $13 million from Social Capital in 2012. We were quickly up to 60 to 80 people. And our software is built to serve micro, small businesses, like zero to five employees. We were the biggest power user of our own system, we were really testing the bounds of how it worked. We didn't move off of our own software until probably 2016 or 2017. So it really held up well for us. It was a good way of stress testing the system, but it certainly wasn't its primary use case.

While Kirk led fundraising and was the public face of the company, his cofounder handled the finances in the company.

Kirk Simpson, Wave: Finances mostly felt within James' purview. He had been in small business tax prep for a long time. So he really understood the domain. You know, as soon as you raise venture money, this stuff's got to be taken really, really seriously. Obviously, I think it's important for any small business owner to understand their numbers and be able to make decisions based on good financial information. We're in that business with Wave. But, it goes to the next level when you get venture financing and need to make sure that everything is running in a really locked down way.

It’s said that Microsoft founder Bill Gates preferred to hire what he called lazy engineers because they would find the simplest and fastest solutions to problems. Kirk doesn’t enjoy the financial side of running a business and that’s pretty typical of Wave customers. They want to focus on their businesses and not their finances.

Kirk Simpson, Wave: What's kind of fun in my personal experience is that I hate everything to do with accounting and bookkeeping and payroll -- all of these kinds of things. I am the sort of classical customer of Wave that despises all of this stuff, believing it gets in the way. This means that a whole bunch of people actually don't want to start small businesses they might be passionate about because they realize all this other stuff gets in the way. And so that was really a nice mix because James brought the technical expertise and had spent time with hundreds of small business owners, so he understood the pain and the friction. And I came at it from loving technology, loving small businesses and wanting to make this stuff as simple as possible so that they could go back to doing what they love.

I asked Kirk to look back and pull out some examples of how his personal history -- his experience -- informed how he built Wave. The product. And the company. He made a powerful decision early on -- to offer free software -- that definitely impacted how partners, investors, and customers viewed Wave.

Kirk Simpson, Wave: Yeah, very much so. Of course, it's always easy to look back. There were some interesting things that I learned through the process for entrepreneurs that are venture backed or thinking about raising from venture capitalists. We knew very early on that the model that we were pursuing, in giving away our software for free, was very capital intensive. Wave's invoicing and accounting software is 100% free, which is unique in the market. And when we did that, we knew that we were going to need to raise venture capital, and probably need to raise a lot of venture capital, in order to get the kind of audience scale that we needed to make our model work.

I think this dynamic requires a startup founder to be very centered on their mission, very centered on their customer and what they're trying to do, and to make sure that you're not getting pulled and pushed into different things through some of your venture partners, I think, on the whole, my relationship with with our venture partners was really, really good. This dream wouldn't have come to life without them.

Hindsight’s always 20/20 and it’s easy to look back and see things you could have done differently as an entrepreneur. But Kirk and Wave’s journey was influenced by how he decided to fund the company.

Kirk Simpson, Wave: But if there's one thing that I wish I could have done differently at times was not get blown in the wind as much as I did based on feedback, and instead stay more true to what I knew the business needed to do. And I think we overestimate the value of VC advice, sometimes over our own intuition, when we're the ones in the business every day, seeing what needs to happen in the business. I think I could have been stronger in that room.

We had gone live at the beginning of 2011. The product was in market for, let's say, a year or a year and a half. And the one thing that I'll say about giving your software away for free is you get a whole bunch of customer demand. But it's very, very difficult to truly understand churn. If I'm paying for software, it's pretty easy to see whether I churn or not, because I cancel the subscription. Small business owners oftentimes go in and out of software programs like ours -- they'll have time one month to stay on top of it, and then they'll defer it for a couple of months. And then they'll come back in month four.

It's very difficult to understand whether or not they've churned or not because they haven't cancelled their credit card. In fact, there's no credit card on file. So we went into our mid 2013 board meeting. And James and I knew in our gut, we had a churn problem. And the advice that we were given was that our sample size was too small, and we should go for growth. And by having more users, we'll get more validation of our hypothesis, and blah, blah, blah. And that was the wrong call. We knew that we had a churn problem and I didn't stand up for that enough. And I think that was a mistake. It took us a few years to overcome that from a product standpoint.

Once Kirk and Wave got off the ground, signs were pretty clear that fintech was in a bull market. And his positioning, at the center of a small business ecosystem, would attract more money from professional investors. Venture capitalists were interested in investing in Wave.

Kirk Simpson, Wave: We were pretty convinced in 2014 and 2015 that payments embedded into software was going to be a big thing. And we started building our own payments platform. And that became a huge growth driver for us. You've seen more and more SaaS companies embed payments to great success. And so we I think we were ahead of the curve on that.

In 2018 and 2019, we began to see that there was a huge opportunity to start embedding a bank account product in our software to make a much better experience for small business owners. And so we were raising funds and having great conversations with folks and in fact, getting very close to finalizing the round. 

That same interest brought potential acquirers to the table. And two years ago, an important relationship was struck between Wave and H&R Block that eventually led to Kirk’s exit.

Kirk Simpson, Wave: And in March of 2019, I first met Jeff Jones from H&R Block. I had my own thoughts about that brand. And I met Jeff, who is the former president of Uber in 2016. And I like to say about Jeff that he was smart enough to get the job when Uber could have had anybody in 2016. And he was values driven enough to leave about seven or eight months later, because he didn't like what was happening there. And so I met Jeff in March of 2019. And he told me about what was happening at Block. And I told him what was happening at Wave. We just really connected on an opportunity to not only build great product experiences for customers, but also values driven in a way to build cultures that you can drive that innovation.

And so, the deal closed in the beginning of June -- that's how fast it went. And ever since then, I've been learning from Jeff, and this year, we launched an integrated tax experience where you can do your books in Wave for free through the year, and then push a button and have all of that move over into Block's tax engine to make tax time easier. So it's been a great marriage. I continue to be excited to work with Jeff and the folks at Block.

It sounds like for Kirk, personalities, culture, and people are very important into his decision making process. Those values influenced the trajectory of his company.

Kirk Simpson, Wave: I appreciate you saying that because really, at the end of the day, I think it's the most important thing. I had an experience when my first business failed. I was doing the math -- I guess I was about 26/27 years old when it failed, and I was about $40,000 in debt. And I really hadn't finished University. I didn't know what I was going to do. I ended up getting a job at a magazine publishing company that was looking to move online in the year 2000. My experience there in the next five years was so seminal to my overall career.

The woman that had hired me was just so amazing and empowering me to be able to do my best work. And I remember thinking to myself when we started Wave, I want to create a culture and an environment that mimics the experience that I had, meaning that people can look back on their time at Wave as being the most seminal in their career. That would be the greatest gift of all. That's really where we focused a lot of our time. I wouldn't say we've delivered it every time to everybody. But I know that on the whole, the culture is well regarded and the people that have graced us with part of their career at Wave have just been a joy for me. You're absolutely right that for me, people, experiences, culture that leads to innovation, autonomy and great work have been the most favorite part of this whole journey.

When Kirk received an offer to buy his company, he was in the middle of fundraising. He could have chosen to continue going at it alone. When’s the right time to take an offer? What’s the deciding factor to choose to stay independent?

You know, that's a very difficult decision to make. Obviously, at the time, I think, you know, when you look at what you want, as an entrepreneur in that situation in a venture backed business is you want the opportunity to be able to make that decision.

Kirk Simpson, Wave: I will always be grateful to the Board of Wave and my cofounder and the team at Wave -- all of them looked at me and said, we'll follow you where you think we should go on this. That was an amazing gift they gave me. And at the same time, it was an incredible burden in a lot ways to make the decision. We had been at this for a long time. Some of our VC partners had been invested in us for a long time. And as I looked at what we could accomplish moving forward in service of our customers and truly bringing this platform to life in a way that would best serve their needs, as well as the financial well being of everybody in the business and the people who had backed us, it just made sense.

I mentioned that some friends had backed us in the summer of 2010. The returns for them on the acquisition would be substantial. And so, on the whole, I looked at it and just made a decision that I thought was the best possible call at that time for everyone involved.

I asked Kirk if there were certain things that were essential for him in his decision making process -- whether or not to take the offer. Whether he had any lines in the sand.

Kirk Simpson, Wave: It's a great question. What I knew going into this, and what I absolutely played out, was that I wouldn't have to have any of those lines, because Block wouldn't push on them. It was just always clear that the team was the most important part. And so it's not like there would be any layoffs or any of that kind of stuff. In fact, we would continue to grow. It was clear that we were going to be left as an autonomous unit to continue to drive forward. It was clear that we were going to continue to invest in the platform to serve small businesses. So, with all of those things, I never really had to develop that line, because quite frankly, it was clear from day one that we were aligned on what that should look like, so that it was the best outcome for everybody.

Even after 10 years, Kirk’s journey with Wave isn’t over. Now, under H&R Block’s umbrella, the fintech software firm is firing on all cylinders. And when he thinks about how he got here, I think Kirk has learned something about his own intuition -- really, the intuition all founders have. 

Kirk Simpson, Wave: I think one of the biggest learnings is to trust your intuition. I think we're in a world right now that has puts a high degree of value on data. And I think that's really important. But I don't think we put enough value on intuition. And I think wherever I listened to it, and acted on it appropriately, whether or not that was making some difficult calls on people or processes or decisions, I think it usually came out in a much better place then if I had over analyzed it. I would coach other startup entrepreneurs to just make sure that they continue to hone that and to look at data to back it up for sure, but to put more stock in their intuition

That was Kirk Simpson’s story around the founding and exit of his financial software firm for entrepreneurs. It’s part of a 3 part series Tearsheet Studios is running with Wave. Go to our website, tearsheet.co, to listen and read the other parts of the series.