ARTICLE

Cedar Rapids' TaxACT went from David to Goliath

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How four founders started from scratch, survived the dot-com bubble, grew a $287M tech company in Cedar Rapids and successfully exited

Where one story ends, another begins.

That was the case for TaxACT, a software product that has become a household name nationwide from offices in Cedar Rapids. The company employs more than 115 year-round and around 50 in seasonal customer service positions.

TaxACT grew out of the remnants of Parsons Technology, a tech giant of Cedar Rapids in the 90s with more than 1,000 employees. When Parsons sold to Intuit, Inc. in 1994, the company had more than 100 products and was releasing a new product or significant upgrade every six days, according to founder Bob Parsons’ website. (Parsons went on to found another tech giant, GoDaddy, which has offices in Hiawatha – but that’s a story for another time.)

While Parsons Technology had several top-tier products to its name, including MoneyCounts, a financial management product, and Family Lawyer, a DIY legal program, Personal Tax Edge was a standout profit generator for the company since users have to upgrade their tax software every year (at the time, it was delivered on either a 5.25 inch floppy or 3.5 inch disc.)

Intuit, makers of TurboTax, discontinued Personal Tax Edge within a few years.

So, four former Parsons employees struck out on their own in 1998, with no assets and no funding, determined to challenge the industry leaders by relying on the burgeoning popularity of the Internet. They named the company 2nd Story Software because they were on the second floor of a building and it was their second time creating a tax product.

“It wasn’t that big of a leap of faith on our parts,” said Lance Dunn, one of the founders. “Yes, we were leaving high-paying jobs, but we could see that we weren’t going to have them much longer anyway.”

Dunn, who had been the vice president of software development at Parsons, was the co-founders’ common bond. He recruited Jerry McConnell and Alan Sperfslage as developers, and Cammie Greif as a marketer (so they wouldn’t have “the best tax program that no one had ever heard of,” Dunn said.)

Staying lean and staying focused were keys to success, in spite of the looming dotcom bubble.

[wc_row][wc_column size="one-third" position="first"] [wc_box color="secondary" text_align="left"]The growth of TaxACT:

1998: Four co-founders, all veterans of Parsons Technology, strike out to create a new DIY tax preparation software. They name the company 2nd Story Software

2000: First entirely cloud-based version of TaxACT available

2004: The company receives an $89 million investment from TA Associates, in exchange for a two-thirds ownership stake

2005: TaxACT is the first product to offer free online filing to anyone

2012: 2nd Story Software is sold to Blucora (then called InfoSpace) for $287 million.

2013: The company's name is changed to TaxACT to better reflect its mission. [/wc_box] [/wc_column]

[wc_column size="two-third" position="last"]The four co-founders were ruthlessly frugal, investing the profits from one year into the next tax season and not taking their old salaries for more than four years. They used the then-emerging platform of the Internet for every major part of the business – marketing, product delivery and support.

“We wanted to do everything possible on the web, with as few employees as possible,” Dunn said.

JoAnn Kintzel, TaxACT’s current president (and another Parsons veteran), echoed the sentiment.

“There was a lot of distraction,” she said of the Parsons days. “When they developed the company, it was ‘we’re going to do tax, we’re going to focus on tax and we’re going to do it well.’ A lot of their success was having that discipline and narrow focus, and delivering on that.”

By 2000, a cloud-based version of TaxACT was released, spurring the company’s growth. In the 2005 tax season, TaxACT rolled out entirely free online federal filing for everyone. State filing, deluxe options and physical discs were available for an extra charge, in an early version of the “freemium” model that has become prevalent in software today.

TA Associates, a private equity firm based in Boston, helped to accelerate that release. In 2004, the co-founders sold two-thirds of the company to TA for $89 million.

The stock sale made bold moves easier to stomach.

“Pretty much every year, we were risking everything we had built,” Dunn said. “Using the poker analogy, you’re going all in every January. So when the opportunity presented itself – these companies started calling us, these private equity firms – it was a good opportunity for us to take some of our chips off the table.” [/wc_column][/wc_row]

After taking on venture capital, the founders knew an exit could only be a few years away. VC firms exist to make a return. The David vs. Golaith phase was over – it was time to become a Goliath themselves.

In January 2012, 2nd Story Software was sold to Seattle-based Blucora (then called InfoSpace) for more than $287 million. In 2013, the name was officially changed to TaxACT to better align with the product.

Greif exited the company at the sale, and Dunn moved from day-to-day operations to a board member position at Blucora, which owns several Internet businesses. McConnell and Sperfslage officially exited in March.

The co-founders credited a completely-equal four way partnership, where all four had to agree on big decisions, for their successful 15-year working relationship. They joked and laughed easily during our interview.

“It’s amazing – all four of us are married and have kids, and starting a business takes a toll on you and your family. We made it through, and we’re all still friends,” Greif said.

Next chapter

Where one story ends, another begins.

Kintzel, the current president, wants to infuse TaxACT with a startup’s mentality once again as the company pursues new growth opportunities. TaxACT is emphasizing small business and mobile products, and made its first acquisition, of Balance Financial, in October 2013.

Part of that innovation means bringing in fresh talent. The staff has nearly doubled in the past two years.

“[Even though] It’s a unique industry, and there’s a learning curve – I think it’s been very valuable having new ideas come in, and having existing employees who have the experience,” Kintzel said. “It’s a nice balance.”

Meanwhile, Greif has been out of the company for just over two years, and is preparing to take another entrepreneurial plunge.

“It’s exciting, it can be exhausting,” she said. “But when you finally get that product, and the marketing’s working, and you start seeing those happy customers and those sales coming in, there’s just no feeling like it. It’s exciting.”

Related: Three tax tips for entrepreneurs and small business owners from TaxACT.

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