Enrico Palmerino: 05:04
It was a lot of arrows in the back. So when we started talking about doing AI, I would say most people were either fearful of what we were messing around with or hated us for using it or trying to build it because they saw it as like, AI is going to put the accounting industry out of business. You’re trying to take my job with a machine. I mean, it was like basically the industrial revolution all over again. And, and everyone, you know, was like, all the Luddites were like lining up with pitchforks and, and fire to burn me.
But the reality was over time, as we started to like build the technology and people started to use it, it became very clear, like this was our, our messaging was like, look, there’s like, AI is not going to replace an accountant. An accountant using AI is going to replace an accountant or many. So you either be on the forefront of technology adoption or you’re going to be, you know, one of the ones, if you’re on the other end of it, that’s where you’re going to run into trouble. But the reality is like, I can tell you, Botkeeper I don’t think has taken or replaced a single job.
If anything, we’ve just there’s a dynamic in the market. So let me just put this out there. So one, 75% of today’s accountants are at the age of retirement. That is a scary statistic. The other scary statistic is we are 300,000 accountants short of what we need to have from an employment perspective to meet the needs and demand of today’s businesses. And with it being easier than ever to start a business, the number of businesses that are formed is growing exponentially and we just do not have the pool. So you need tools like AI to supplement or bridge that gap.
For the most part, what Botkeeper is doing is we built a single platform that allows an accounting firm to connect Botkeeper to the GL of their client’s QuickBooks or Xero and use the AI to do intelligent things like automate categorizations and classifications, reconciliations, journal entries, workflow. So like fetching documents or statements or OCR and extracting data off of documents, or automating workflows for capturing passwords and connecting bank accounts.
And then, you know, everything, like we’ve got everything in this platform that you’d need to, you know, effectively run or manage a practice, or you’ve got document storage, we’ve got task management, we’ve got activity feeds and communications and comments. And as I mentioned, password storage and insights. Like that’s one of the things like, you know, that I was always lacking with the accounting practice was the ability to see what’s going on. So what are all the clients we have? Where are they at in their closed process? Who’s on what accounts? Who has capacity to take on the next client? So what we do is we normalize all the data. So you can see, okay, just because this person has ten clients and that person has five. Well, the person with five clients has way more tasks and transactions and wrecks and, you know, basically more work, even though on the surface it looks like less. And so we allow you to like use that to benchmark and, and load balance workload as well as, you know, just operate your practice more efficiently. So that’s Botkeeper in a nutshell. Yeah, man, it’s been a wild ride. We started selling to direct SMEs initially, then converted to selling to accounting practices.
Dr. Jeremy Weisz: 08:42
And I’m curious why SMEs initially, not accounting practices? Just because that’s the world you came from?
Enrico Palmerino: 08:50
It’s more so because accountants are, I’d say, laggard, pessimistic tech adopters. And that’s not firing shots.
Dr. Jeremy Weisz: 08:58
So you’re like, it’s going to be an uphill battle to try and sell the accounting firms into this?
Enrico Palmerino: 09:04
Correct. Because they need trust. And it’s not like, like I said, I’m not like, you know, firing shots at the accounting industry. It is like they are the custodians of their clients’ data and financial well-being. So they are like on guard to touch anything new that’s unproven without a history and successful track record. So rightfully so, would have been treading uphill trying to convince them to use this brand new technology that everyone was fearful of and didn’t trust until we had the proof points.
Small business owners and entrepreneurs, on the other hand, are like, hey, it looks cool. I’ll give it a whirl. What’s the worst that can happen? So that was how we got the data sets and trained the models and built a lot of the AI. And then inevitably those success stories or those clients had tax accounts that also did bookkeeping. And they were watching like, how are you getting your bookkeeping done for a couple hundred bucks a month when like, I would charge you 2000 bucks a month and like, and it’s real time. It’s happening every day. And they’re like, this doesn’t make sense.
So firms eventually started pulling us in and asking if they could white label and use a platform. And then eventually the use case was so strong that we went all in on the accounting channel and exclusively sold to accounting firms. Today we do a little bit, but I’d say like predominantly 99% of all of our business is accounting firms, unless there’s a unique use case where the business kind of looks more like an accounting practice than a traditional business.
Dr. Jeremy Weisz: 10:29
Yeah, that makes sense. And it’s more of a one to many approach. So it’s kind of, you know, we’re talking.
Enrico Palmerino: 10:35
For us, the sales and marketing costs, the CCaC and then the expansion. So if we get an accounting firm and they start using us on, you know, this just happened three weeks ago. A firm came in, they bought 1 or 2 licenses, started using it. We’re like, this is great. And the next thing you know, they had 25 and I didn’t have to go find 25, you know, unique clients and convince them like I just had to do the value prop once, let them use it and then let them expand. So.
Dr. Jeremy Weisz: 11:03
So the idea in the beginning was really, we get a bunch of, you know, the entrepreneurs are tech adopters, get a bunch of them, get a bunch of use cases, and then go look at all these people using it and gain trust with the accounting firm. And like, I guess that my question, when you first started talking, Enrico, was, how did you first sell into one of those first firms? Because like you said, they’re like, we don’t want your software touching our private data or anything like that. So it sounds like you had a bunch of case studies.
Is there anything else that you used or communicated to sell into those first accounting firms? You know, when you’re selling those accounting firms, we’re not talking today’s landscape where people are talking about AI. And I mean, it’s more commonplace now than it was then.
Enrico Palmerino: 11:53
Yeah. I’d say like the, you know, best tip for like any entrepreneur is like, you know, you’ve got lightning in a bottle when the market pulls you versus you having to like force or push whatever it is you have on the market. So for us, the SMB market, like there was this need. Everyone needed bookkeeping. And it was like everything was being done. So traditionally and you just had the impetus or the precipice of these cloud accounting firms, which were firms that were not just using everything on a desktop, they started to use cloud based applications to do your accounting, and now you could access it from anywhere.
And then right as that was happening, we were jumping in and we’re like, whoa, we’re just jumping. We’re just leapfrogging over that world and we’re going straight into the AI world. So that caught a lot of buzz in the SMB sector. How we got to the accounting firms was as simple as all these clients. We just did bookkeeping. We didn’t touch tax. They all had a tax accountant somewhere. And eventually one of those tax accountants also did bookkeeping services and just looked and were like, who do you guys use for bookkeeping? And they’re like, oh, use Botkeeper. Like, well, what do they charge you?
And when they realize that what we were billing the SMB was less than what they would pay their staff alone to do the work on the SMB to like, try to like that you couldn’t compete economically with the price point. That’s when we had two firms that I’ll never forget those two firms in 2018 reached out and they’re like, I don’t know how we do this. Like they came in through our site. Like, would you be willing to let me white label or use your software on my clients? And I was like, I don’t even know how that would work. Our platform’s not set up for it, but like, let’s give this a whirl.
Dr. Jeremy Weisz: 13:37
And as an entrepreneur, you’re like, yeah, we could do that. Yeah. Let’s go figure it out. Right.
Enrico Palmerino: 13:43
And it was janky as hell. But, you know, we went from a couple use case test cases to, you know, I want to say each of those firms got like one got like 80 clients and the other one got to 100. And it went to my VCs. We just raised around and I was like, guys like we used to, you know, try to capture 100 clients in a month, right? Like that would be amazing if we could grow by 1000 clients a year. That’s fast. Typical firm. If we were growing by 100 clients a year, just for perspective, that’s really fast too. A typical firm was growing by like 2 or 3 clients a month. So we’re already 3x a typical firm, and now we’re ten x that with what we were doing. And I was like, wait a second, we just need to land one accounting firm a month and we can do 100 on top of all the other growth. We land two firms a month. And I was just like, whoa, this that’s the model.
And the other nice thing was firms always have like a plethora of clients. For the most part, they’re rolling us out. They’re getting new clients all the time. So the churn dynamic changes because if we sell direct to an SMB and we lose the if the SMB goes out of business, we lose the license. But we can sell to a firm, they can buy ten licenses. If they lose one client that’s on the platform, they already have others that they just haven’t onboarded yet usually, and they just put a new one in the seat. So it’s like it’s beneficial for both parties that they’re not really paying much extra. You know, there might have been a few days that went by where like they’re paying for an empty seat, but we didn’t lose the seat entirely. And so the churn metrics are also better.
So yeah, and that was and then one thing led to the next. And we opened up a beta program. We had like 100 firms sign up for it. And then we rolled it out at the end of 2019 and it just took off. And the biggest question we had was, well, hey, if you guys are, and this is also when AI was like a fearful thing, they’re like, well, if you’re going to use this on my clients, what’s to stop you from five years from now getting all the data and all the learning and then just being like abandoning me and the accounting industry and just trying to take all the clients yourself and be the AI firm in the future. And so I was like, I don’t want to be that. That’s not the goal. I want to democratize AI for all. I don’t want to. There’s a couple firms and companies out there that are trying to do that for me. And frankly.
Dr. Jeremy Weisz: 15:57
Did they make you want to sign a non-compete or something or how did they get around that?
Enrico Palmerino: 16:01
We always signed that basically said like, we’d never, you know, attempt to take your clients or we were forbidden from it. But the biggest thing was, well, I was like, listen, economics are what drive everything. So I can try to be the biggest accounting firm and fight everyone. The entire incumbent industry 155 accounting, 155,000 accounting practices and all of your incumbent clients. Or I could be like a hero and license the technology that only a few can afford to build and license it across the masses. And then I will have like the lowest cost of acquisition possible, the biggest LTV to CCaC ratio, and all these other things that are going to make, frankly, my company way more valuable and more efficient than if I did try to do that. And they’re like, oh, that makes sense.
And then I said, and then, you know, to, you know, put my money where my mouth is, at the end of 2020, we officially stopped taking on new SMB clients. And in 2021, we sold off our direct SMB book to one of the firms that was using Botkeeper at the time. So we got out of the SMB market altogether and just were all.
Dr. Jeremy Weisz: 17:14
Yeah, they were worried, oh, they’re going to compete with us and they’ll get our clients and then we’ll just go direct to the clients or whatever it is.
Enrico Palmerino: 17:21
And I can tell you to this day, never it has not happened on a single client. We have never even had, it’s never even been a conversation. We’ve been the farthest from that ever happening. But what does happen is firms that use Botkeeper acquire other Botkeeper farms because like one, the EBITDA looks really good. If you use Botkeeper, we improve your gross margins and all that.
But two, the merger or the acquisition process is so much simpler because we literally take all these AI-fied clients and we just add them, switch from one platform to the next, and, and the continuity, you could, you could acquire a practice and all the bookkeepers could leave immediately, and the books would still continue every single day. And you’d have a month to like backfill as best as you can. And even those people would only have to do, you know, 15 or 20% of the work compared to like all of it. So it’s a, it actually ends up being like a really, for better or worse, we become a pretty, our clients become big acquisition targets.
Dr. Jeremy Weisz: 18:23
How did you, Enrico, come up with pricing? Right. And I don’t know, pricing has probably evolved over time. You know, here’s a page. And if we’re looking at this at this point in time, it could go up. So lock it in or whatever. Right. So but you know, I guess one question is pricing and the other is for the firms for each business they onboard, do they need an individual license? Is that how it works?
Enrico Palmerino: 18:49
Yep. You get an individual license for each business you onboard.
Dr. Jeremy Weisz: 18:53
That’s interesting because like there’s some firms they have hundreds and hundreds of clients. So do they tend to go like, hey, let’s test this on like 15 clients to see how it works, and then we’ll increase our licenses?
Enrico Palmerino: 19:06
Correct. And that’s why, and what we found is, the sales process and the testing process, like the cost for someone to try this out is the same as if you were to put 10 or 15 clients or 25 clients on right away. It’s just like, it’s, we’re going to handhold you on those first few no matter what. Now, if you were like a tire kicker and you’re like, hey, I just want to like check the technology or just use it or like learn about it. I’m not really interested. So that’s why previously, it was like one price. That’s it. It was just $69 a license, buy one, buy 100. What we realized was there are a lot of people who are like buying one. I don’t know, the economics just weren’t working. And so we raised it. If you buy fewer and we incentivize you to buy more, and then I’d even say like, once we’re getting into like the hundreds or if we get to thousands, I mean, you can see the price point get below $40 a license.
Dr. Jeremy Weisz: 20:04
You basically, what was the starting price for a one license years ago?
Enrico Palmerino: 20:11
So our pricing has come down almost every single year or every couple years compared to where it was. Initially, the lowest price point we had was if you were buying one license, it was maybe like $399 a month. And then we dropped it down. I think it made its way down to $199 and it was like $149. And so we’ve just continued to lower it.
But, you know, and I expect it to continue to, you know, as we get more efficiency, it’s just going to depend like we, we’re planning on rolling in like a bunch of like really cool features and functions. I mean, we’ll talk about the Xendoo acquisition and what that means, but there’ll be this point where like historically, I used to tell people expect it to always come down. Now, I’d say like our goal is to like load up more value with more functionality, but try to hold the price as close to what it is despite adding a ton more features and functions.
Dr. Jeremy Weisz: 21:14
I mean, I’m fascinated by pricing pages. There’s a lot of psychology that goes into pricing pages. And so, you know, I was just looking today at like, okay, let’s look at Pipedrive, like just how they display it, how they put it, what order they put it in. Obviously they want people to go with the premium option. It’s highlighted in green most popular and you guys have that too on yours. Most popular. But you could see. Again, I know like a lot of people kind of play around with pricing early on because they’re not sure what’s going to hit. And obviously it’s a value based pricing because if we’re thinking, okay, you can and we’ll get into how people are using it, but if someone could say 77 hours in a week or two. Okay, multiply that by whatever amount of dollars. Technically, $1,000 a month would be great for them, right?
And so how do you price it based on that? And it’s interesting that you’re like, okay, well, we want to encourage people to get more licenses, especially the big firms. So it’s almost, it’s like almost a third of the price if you get the 25 licenses versus the 1 to 4. And so they’re thinking, okay, I might as well just get more licenses because, you know, it’s just an interesting psychology.
Enrico Palmerino: 22:31
So we know the more you use it, the more time you’re going to save, the more is a combination of things. So one, you’re going to save more time. You’re going to see more, more ROI. And the tangibility of the ROI becomes more real because the hours of savings can no longer be ignored. If we’re saving, if you got one license and using on one client, depending on the size, maybe we’re saving you 15 or 20 minutes a week still might be worth it. If you’re putting it on a bigger client, maybe saving you an hour or two a week. But do you really notice the hour or two in a 40, you know, plus hour work week? When you’ve got five and you’re saving ten hours a week, like now that starts to like, like there’s no question. Like you literally there’s a day of work gone off of your schedule every week. So we just know we got to get, if we get you to more.
And then the other dynamic is our whole goal of building Botkeeper as a platform is to eliminate a lot of the system switching. Like today, the typical practice use 12 to 15 apps to do one thing called bookkeeping. And so our goal was to use one Botkeeper to do the mass majority of all those apps. So maybe you have three apps or four apps in total instead of 12 to 15. And with the Xendoo acquisition, we’ll get to, I think, 1 or 2 apps total to do bookkeeping and run your practice.
But if we can get your accountant, if they’re supporting ten, 12, 15, you know, plus clients per month, if we can get them every single one of their clients on Botkeeper. Now, how you do the bookkeeping, because it’s different with Botkeeper. When we automate reconciliations and we automate transactions and we automate month end review your workflow and cycle and the timing of things just changes. So you just got to get comfortable with that. It’s not ideal if you have like three clients on Botkeeper and 15 that you’re doing the old the way because then like, we’re always going to be the odd duck, right? Like in that mix. So we want to encourage you to get all 15 clients on. Have Botkeeper’s way of doing things, be like your new standard.
And that in itself means that you’re going to like, be very happy and you’re gonna like it and you’re going to maximize the ROI. And we’re not going to be this like outside tool that is always an inconvenience or always funky because it’s being used on so few clients. So that’s why we want to incentivize you to get to more, more clients faster. But we’ve tried it. We’ve changed pricing.
Dr. Jeremy Weisz: 25:00
Well, that’s why when I look at this, Enrico, and I’m like, I mean, I’d be like, oh, make this 199 and it’s like, and then it’s half, you know, 5 to 9 license. It’s like you could easily charge more, but you’re keeping it low.
Enrico Palmerino: 25:16
How we get to the numbers is when I look at it, if my goal was if I can replace three of the apps that you’re using today. That should pay for the per license fee. And then every hour we save you is icing on the cake.
Dr. Jeremy Weisz: 25:31
Yeah. So it’s like a no brainer pricing even for the one for licenses.
Enrico Palmerino: 25:37
Correct. That was a.
Dr. Jeremy Weisz: 25:38
Yeah. And you have like a calculator here that you people can play around with that bookkeeper hour. You know, if you’re listening to the audio, there’s a, we’re on the botkeeper.com/pricing page here. And there’s, you can play around with, you know, whatever you want to play around with, how much you would save per.
Enrico Palmerino: 25:59
And the savings is real. I mean, we just had a firm three weeks ago signed up for their first client. They use it, they’re like, wow, this is like magic because it is, like once you start using it and you like wake up in the morning, you’re like, there’s no transactions to be reviewed. And like, oh, well, what did Botkeeper do today? What did it do for me today? It’s like your first reaction, then you go in and you’re like, oh, it did all the transactions and it didn’t need me to review any of them because it was at the 99 or 98 plus percent accuracy. Like that’s cool. And oh, look, I already did part of the month on rack and I have like two exceptions to review that I’d normally be stacking up and reviewing at the end of the month. So that firm went from, you know, the 1 or 2 licenses to, I think the 25 licenses. And then within two weeks after onboarding those clients, they’d already saved like 77 hours a week.
So, you know, now that becomes like the savings are real and the dollars are real. And for them too is, well, if I lose an employee, my clients will not be none the wiser for at least 2 to 4 weeks. And that’s plenty of time to try to find a backfill versus the bad situation accounting firms get. And I’ve lived this. You lose a great employee like, oh shoot, everything stops. Come to a grinding halt. Now, in order to avoid all 10 or 15 of those clients or, you know, 20 clients like blowing up and being what’s getting done? Why am I paying you for no work? You end up load balancing, you shift all that work to your other employees.
Your other employees were probably already at capacity or close to it. So now you just overburden them. And then that one employee who left ends up being the kind of creates the chain reaction of like another, another, another 2 or 3. And it just becomes this death spiral while you’re trying to like, clamor and find and replace all that goes away if you’re using Botkeeper.
Dr. Jeremy Weisz: 27:56
Yeah, you need a new headline here. Avoid the death spiral. Yes. Yeah. No, a couple lessons for me here, Enrico, which is like for anyone listening, you know, like, how do you in initial pricing make it a no brainer for someone? And how do you make it even a no brainer for them to increase their serve, your services or product with you? And two, can you incorporate a calculator somewhere on the page so people can kind of play around with, you know, the real life value that they would get with it. At what point did you raise money in the business?
Enrico Palmerino: 28:32
So I self-funded it. I put about a million of my own capital. I was, you know, fortunate. I had started a business when I was in college that took off and made some money and, but then risked it all like, basically like it was like I got, got this money, like go all in on Botkeeper and I like parked.
Dr. Jeremy Weisz: 28:50
Where were you in your life, personal life? Were you married single at that point? Like, was there a conversation like, hey, to your wife? I’m just going to bet it all. It’s fine.
Enrico Palmerino: 29:03
Yeah. I was married. Just recently married. So. And I was 25 maybe like, so it was like young, but I had just gotten out of. I had started a business in college, the lighting one. And then I exited that and was able to park some money in the bank and we just built a house. And I was like, all right, well, I’m going to budget $1 million over three years to fund this and get it off the ground. And within like less than two it already like it consumed it. And it wasn’t because what I, what a lot of business owners don’t, I think factor is what if things go well? So when you’re looking when I was when you’re looking at SaaS models, you’re, you have a, there’s a payback period on your cost of acquisition. So like great payback period is less than six months still six months though. So and we were running in like that kind of realm. It was like 6 or 8 months in like the early days.
But what that means is like, if I acquire more clients faster than I thought I would, the cost of onboarding and acquiring, like the commissions and all expenses that go associated with that client. It’s going to take me six months to recoup the money for it. So if I grow faster than I was assuming, well, yes, the top line and the dollars and stuff look really good. The cash flow becomes really, really bad. And that’s basically what happened to us. I had hoped to go from, we went from like 0 to 300K in our first year ish. It wasn’t even a full year. And then by the following year, we were already pushing a million plus and we were like eight months into that year. So we’re like almost four X the following year.
And we were tracking to basically do another four X the year after and then and like, and nothing was looking like it was going to slow down. So we’re going to triple again. And the magic rays, if you’re going to go out and raise money, they always say triple, triple double double double or triple triple triple and so that was starting to happen was I was like, oh shoot, I’m not going to have the if this keeps up, I’m like excited about top line and you’re like, looking like cash flow is going to be a pain. I’m going to be out of money. Like I’m not going to be able to fund this. It’s just like the crazy thing that.
Dr. Jeremy Weisz: 31:34
Which seems counterintuitive.
Enrico Palmerino: 31:36
Yeah, I’m going to throw myself into the grave. And so that’s when right about the point where we had several hundred clients and we’re doing, you know, a million or so in revenue is when we went out, we raise our ended up being our seed round. And that was about $4.5 million. And this is the thing I encourage everyone, if you’re a startup, you’re thinking about when to raise money. Here’s like the threshold. If you’re a serial entrepreneur and you’ve got like a track record of success, you can raise on a pitch or an idea or a deck, everyone else, it’s like impossible. Not impossible, but like low probability.
But once you hit about 350 to 500, that can start to justify a pre seed. But you’re going to end up giving away on a pre seed unless you got like a crazy idea and you know some VCs are going to bet the farm on it. You’re going to give away 25, maybe 30% of your company for a half 1 million to 1 million bucks. Now, if you can get to $1 million in revenue, you can raise $4 million or more and give away 20 to 25%. So you can raise like, you know, call it anywhere from ten, I don’t know, 5 to 10 X the amount of capital and sell less of the company just by getting to a million before you do your first raise. So and then from there, you know, once you’ve, if you can kind of keep growing and having the revenue and IRR rise and future raises, you can keep raising more money and take less and less dilution on each subsequent race.
Dr. Jeremy Weisz: 33:15
And what did the team look like during the initial like from the start? And then as you started to grow?
Enrico Palmerino: 33:23
So my sister and I were among the original founders. We’ve done three other ventures together. So it’s, you know, we’re, we’re used to working with each other. Yeah, Angie. And then Jessica’s actually my sister in law and we’ve done a separate, we’ve overlapped. Angie. Jess and I have overlapped on one venture and then I’ve done two with Jess. And so we’ve all it was like this comfortability working together and everyone is like, just works around the clock and is kick ass at what they do. This is the opposite of nepotism. This is the. I just happen to there’s a genetic trait, I think somewhere that like, we just are never exhausted and just work incessantly and so great people to start a business with.
And then Louie and Andy, who aren’t on here, they were the. Andy basically covered the operation side of the equation. He was. Had a CPA and Louis was kind of like the, you know, undeclared mayor of Boston who was selling, you know, products into SMEs. And everyone knew him. And so, and he’s like extremely likable. He’s an amazing guy. And so he was heading our sales and he was making sure that like, from an accounting standpoint, what we delivered and how we delivered it worked. And like, it was kind of, we were figuring out what we could automate and workflows and processes.
Angie was handling marketing, design, brand. Some of the CS side of the equation was doing a little coding. I was doing a bunch of decision trees and the algorithms for automating. And then the next person who started moonlighting and then joined us kind of full time was Justin de Bosch, who came on as our CTO or our head of engineering. And so he was, he was the one that like helped us hack it all together.
Dr. Jeremy Weisz: 35:18
Did you have to raise money? Yeah, it’s amazing. What you’ve done is really interesting working with family, too. Did you raise money for Thinklite, or was this the first venture that you raised money for?
Enrico Palmerino: 35:31
This is the first one I raised money for. Thinklite was self-funded with credit cards, student loans, and bank debt. And I say student loans because like basically back then they would. And we were able to do this like not the whole time, but like, there was a couple times in the very early days where the way the student loan funding process was like, you get your student loan, they deliver it, they deposit the funds in your personal bank account, and then you pay the tuition fees as they came up. And so there was a couple of times like the deposits would come into our account, and then we’d use the money over here in the business, and the business would throw off capital, and then we’d use the capital that kind of came back from the business to pay.
Dr. Jeremy Weisz: 36:19
And student loans have low interest rates too. So that’s, that’s a good.
Enrico Palmerino: 36:24
That’s great. And deferred interest, right. So like, let’s see the other nice thing. So and it’s, you know, it’s not supposed to be, it’s a gray area because at the time they changed all the rules and regs. Like it doesn’t work that way anymore, probably because of these things, but.
Dr. Jeremy Weisz: 36:36
I’m sure it was more prevalent at Babson College to where there’s entrepreneurs all over the place. Like, I’m just going to use half of this for my venture.
Enrico Palmerino: 36:44
Right? And it’s gray because like, it’s the money’s all going in one account and it’s like mixed with your other money. And so, you know, you’re, you know, but anyway, that and tons of credit card debt and then tons of bank debt is how we got that business off the ground. And I say tons of bank debt. I mean, we had like my business partner, I was like 18, 19 years old. And I remember us being like, shoot, we just took out $1 million in debt. And like, I don’t know how we were going to pay this back. And then there was a point where the business was not doing good. Or like mostly we had, there was a couple storms overseas, like tight tied up our shipping and products and delivery. So we took out another million and we’re like, if this doesn’t work, like we got $2 million in debt and like no assets to yeah, like, this is we’re going to be screwed for the rest of our life. And fortunately, it didn’t play out that way. But yeah, it certainly could have.
Dr. Jeremy Weisz: 37:35
Enrico, when did Xendoo come into the picture and discussions on acquisition? So because fast forward, I mean, you guys are growing really quickly. You’ve raised over $100 million to keep growing and to service what you’re doing. At what point do you think maybe there’s an acquisition or maybe there’s a conversation? How did that come about?
Enrico Palmerino: 38:02
So we raised our last round was in like 23-24, and that round was raised with the intention of crossing into profitability. So it was like, okay, this one, here’s the path, it’ll get us there. And as we were getting closer, like we were supposed to hit profitability in late 26, we started, I started to think like, okay, when we hit that, like, what do we do then? Do we self-fund growth with profits? Do we go and raise another round with a very different profile for the business because we’re profitable now? It’s like a different type of raise.
Dr. Jeremy Weisz: 38:36
You have unlimited runway at that point.
Enrico Palmerino: 38:37
What’s the dilution look like? You know, and so I started having convos with a couple other companies that I thought like, hey, you know, maybe I should consider like a merger or acquisition. We should consider acquiring someone kind of figuring out what that, what’s going to get us where we want to go the fastest with the least dilution possible.
Xendoo wasn’t one of those conversations, which was ironic because then also right at the end of 25, we had a black swan event. So like, we’re trucking along. We had a blowout quarter, a best quarter ever. Q3, we beat that Q4. We had like, everything was looking like, oh my God, we’re going to absolutely. We’re going to go from like hitting breakeven late in 26, like hitting it in Q1, Q2 of 26. Then all of a sudden, eight of our largest clients who had a million and a half dollars in expansion contracts out that had been redlined and like everyone had given us, like, yes, we’re going to we got this money come in and we’re going to go buy firms and put Botkeeper on those.
And so that’s why we need, you know, hundreds of more licenses in the final hour. We heard from like all of them, it felt like I was on the Truman Show. Hey, like just learned private equities actually like shutting down the US department is like shipping everything to India. And it’s like, just bought a practice over there and they’re centralizing operations. They don’t want to touch or look at tech right now until they finished the processing shift. I was like, well, when is the tech on? They’re like 6 to 18 months. It kind of depends on how long the transition takes and in a blink of an eye. And it was, you know, it was tough because they’re like, he was great. Like one of the reasons they acquired us because like our EBITDA and like all this stuff that you’re doing for us, and I’m going to fight this because I just don’t think they understand that, you know, all the dynamics at play and what Botkeeper’s doing right.
Dr. Jeremy Weisz: 40:32
What got us this far is now you’re stopping it essentially.
Enrico Palmerino: 40:37
And it all fell on deaf ears. And in a blink of an eye, I lost a third of my revenue with just eight clients. And we had hundreds of firms. So like revenue concentration was, you know, kind of a, you just think of like revenue concentration. If I lose one of the big ones, it’s not the end of the world. Two nothing but like, did I ever think I’d lose eight of my ten? No. And it just happened all at once. It’s just our biggest clients. All were renewed on calendar year schedules. So that sent us into, oh, shoot, our runway is gone.
I mean, we were tracking the profitability, so we didn’t have a huge reserve like you would normally if you were trying to, you know, raise a round. And so here I am landing in SF, getting off a plane. We just ran the math. Saw we lost a few months of runway, found out our bank wasn’t going to let us pull our line, which took away another couple of months of runway. And then I had to look at what the costs were for, like a wind down. And that’s like expensive. Like it’s not that’s what people don’t realize. You can have a million bucks in the bank. And then when you look at if I had to shut it down today and didn’t have any more revenue coming in and I had to fund servers and costs and legal and this, it’s like another half a million bucks.
And so we were, I’m NSF, we’re, we’re at a Xero conference where we’re getting like special API access and stuff, which is like, once again, we’re going to be one of like two companies that have this. So like things are going great. And I meet Lil who’s the founder of Xendoo and she’s like Xero. Bridget at Xero introduced the two of us and she goes, we’re about to land this huge client. We need software that’s going to automate catch up and clean up. I heard you guys have it. How does it work? Explain. That’s it. That’s exactly what we need. And that’s going to let us land us. I was like, amazing. And she’s like, I also need people. You guys have connections to the Philippines. I said, I actually have people in the Philippines because as our AI gets smarter, we need fewer people reviewing it. So rather than pay out severance, I would happily license them to you at a small markup. And to win win and everyone’s happy. Our employees are happy, they stay employed. It’s all good.
And she’s like, oh my God. I was like, she’s like, when can we do this? Like, I got a caveat. Like I just lost a third of my revenue. I found out in the last 24 hours. And like, we’re out of runway and I’m going to have to announce a shutdown. And like, while we figure this stuff out. And so over the next 3 or 4 days, we just hunker down in a hotel room and went through it. And this is where like the not one who believes in like coincidences, things like happen for a reason. We look at our tech. So the next thing is like, what was your tech stack look like? Like everything matches. Like we’re written in the same code base, same language, same server, same data warehouse, same CRM, same, same, same, same same, all the way down. We’re like, Holy smokes. That alone, consolidation is hundreds of thousands of dollars in savings.
Dr. Jeremy Weisz: 43:35
So the integration would be way easier.
Enrico Palmerino: 43:38
Super easy. Like we literally just port licenses. And, and just connect and everything pretty much goes. If we’re going to build or merge features, they are written in the same, and we’re built on the same platform. So that actually is like a relatively simple process. Like we could have everything fully merged in 9 to 12 months.
And then where it got crazy was when we looked at like, all right, well, let’s look at what we built respectively and our roadmaps. Xendoo had built really amazing practice management software to like run and operate and, and they just started to like license it out. And they built software that migrates QuickBooks licenses to zero, like fully autonomously. They built tools for advisors to see, like all their wealth managers see all their clients and like how their panels and everything are doing same thing for franchises, same thing for just like a number of like industry niche tools, but hadn’t dabbled in AI yet, had just started to like look at it. And we had like, finally, like finished most of the AI stuff that we were like, like was first and foremost. And the next part on our roadmap next three years was to build practice management into it, because then we could vertically integrate that AI and have it do from prompt to completion, all the work. So when we looked at those two things like, oh my God, this is like a match made in heaven, it’s going to be better.
And so it was the fastest acquisition process that you could ever imagine, like 3 or 4 days by the end of that week. So it was like on a Tuesday. By Friday, I had an LOI with a deposit that was signed. And our teams and culture were like, mirror image. Like that was like crazy. Like we felt like we had been working together for ten years, if only, if only. And so, but the tough part was like, legally there was some like legal stuff that needed to be sorted out. So we did ultimately need to announce a shutdown for about two weeks. And then the third week we announced that we weren’t shut down. Now, all the while the servers kept running. The software kept working like nothing changed. It just, we had like officially announced the closure and then we popped back up under the Xendoo umbrella and then, you know, back off to the races. And I think we’ve been signing a new firm on almost every other day at this point, if not daily.
Dr. Jeremy Weisz: 46:00
It’s a crazy story. Yes, exactly. I mean it’s like.
Enrico Palmerino: 46:04
How did it happen? I’m like, well, sometimes things happen unexpectedly.
Dr. Jeremy Weisz: 46:09
I’m stressed out going through listening to that story. It’s like, if anyone thinks entrepreneurship is for the faint of heart, I mean, it’s no joke. You know, even when you’re up in the high a matter of a day or week or whatever, just something can kick you down. So thanks for sharing that.
Enrico Palmerino: 46:30
Yeah, it’s all more fragile than I think people realize. Like, you know, and as you think about it, a hundred million bucks and, you know, ten, 11 years of, of work, effort building and like a large team, I mean, this isn’t, we were at one point, there was a point where it was like 5, 600 people. We had a lot of people doing the data validation review process. And then to think that like in a blink of an eye and like eight firms can change all of that is, is wild. But that’s the reality.
That’s why when you see these other companies, you’re like, how did that huge company all of a sudden close overnight? What happened? You know, oil prices rose 30% and the unit economics to final mile fulfillment becomes impossible. So yeah, it’s crazy, but happy to be where I am. I mean, it could have been so much different. And like I said, you know, some, some luck, chance. I mean, luck is a big part of the entrepreneurial game, right people, a little bit of luck.
Dr. Jeremy Weisz: 47:29
And like, thank God you went to that Xero event.
Enrico Palmerino: 47:33
I know. Exactly. And that’s why it’s like everyone’s always like, you know, they like to say I was in the right place at the right time. I tell people, hey, you go a thousand places a thousand times. One of them’s bound to be right.
Dr. Jeremy Weisz: 47:43
Exactly. Your luck increases. Yeah. One last question, Enrico. First of all, thanks for sharing the journey. Everyone can check out Botkeeper.com. Obviously check out Xendoo.com to learn more. Last question is just about mentors, resources and resources could be direct mentors that you’ve had in business. It can be maybe books or, you know, distant mentors, whether it’s some of your favorite books that you’ve learned a lot from, or could be from one of your investors who gave you advice. Who are some of the mentors, resources that have helped you on the journey?
Enrico Palmerino: 48:25
So my grandfather was a big mentor of mine. He was an entrepreneur. Actually, both of my grandfathers were. My dad and mom were entrepreneurial too. So I obviously probed and picked their brains for a number of things. And then in the early days, I think like we had a gentleman named John Poulin who joined and I learned a lot from him. Like he had, you know, been there, done that, you know, was kind of like thinking about retiring, but like never going to retire. And stumbled upon us and like, put a bunch of time, effort and advice into it and like, you know, helped us make that what it was.
And then with Botkeeper, it was my VCs. It was friends and buddies who I’d known had like started businesses and done well, you know, Tom Biggins, Hap Klopp, who’s a founder of The North Face. So he was a great mentor. He gave me a lot of really good advice. And then, yeah, just a number of our board members and we had amazing people around, whether it’s, you know, Tom Golisano, who’s the founder and CEO of Paychex or. Yeah, I mean, it’s just.
Dr. Jeremy Weisz: 49:42
Is there any particular advice you remember from Tom? I mean, building a company like Paychex is pretty remarkable. that he. Any advice or lessons from him?
Enrico Palmerino: 49:52
Yeah. I would say if only I started working with Tom a few years prior. So no matter how big like that, the way he looked at every business and like the PNL and he just like, he like took, he could take like the most complicated business and then just like simplify it down to like the core fundamentals and have a really, really great at doing that. When we started to like change how we were running and operating Botkeeper to instead of being like, hey, we’re a venture backed business, which means you’re optimizing for these ratios and these numbers and stuff to raise future rounds. And he was like, no, like, why don’t you just optimize to be profitable and not have to raise?
And I was like, well, that changes like all these things. It changes growth, it changes, you know? But it was like a really good dynamic. Like, I think if there was more of that in the venture space where it’s like, okay, here’s fuel, but then let’s like try to be really, really efficient and not try to win by growing the fastest. It’s kind of like, can we create a flywheel where the growth is self-funded that I would say like for Tom, he just simplified. It was just like, hey, when you’re thinking about sales, why don’t you just do this? Why don’t you have people in, in firms onboarding them? Like if onboarding is a challenge. And it was for us like years ago when it took like 30 minutes per client. Now it takes like two, but it was just like, just put someone in there for like a week and onboard them. It’s like, well, isn’t it costly? He’s like, yeah, but if you get them on and they’re up and running, like it paid for itself in however many months is like, I mean, it’s just like it was that kind of.
So now I do think about businesses very differently as a result. So I learned a lot from him. I learned a lot from Pablo was just always he just always pushed you to like, just just make it the best it can be. And then the market will pay for it to be the best. Like you’re better. Like, and that’s been the thing. Like it’s funny with Botkeeper, we focus so long on our transaction manager where it automates the categorizations. And I’ve seen like so many companies just like pop up out of nowhere and instantly have like, hey, like we don’t even have a human in the loop and the AI is doing transactions. Well, difference is the other guys, it’s like a third of the transactions get a recommendation and 23% and they get it right 23% of the time. And us, it’s 80 to 90% of the transactions are fully categorized at a 98 to 99% accuracy.
And what we’ve realized is like, it’s actually binary like that, that level of accuracy and performance is what wins, and the other one just doesn’t. And so but you know, at the time, it’s like really tough to like spend, you know, five years and a boatload of money in engineering to get there when everyone else is like, well, isn’t 30% good enough? Or like, you know, so. Yeah, I just say like, surround yourself with people who have been there, done it, and then just pick their brains and give them like the best thing I did is I gave people, I gave people a little bit of equity. Just, I was like, hey, stay close to this. You have some stake in the game to win. So if I call you, you’ll hopefully answer or you’ll care. If you read something about a competitor, you’ll call me. And so yeah, I just surrounded myself with a lot of smart people. And I’m not afraid to ask questions. And I frankly, I don’t like to call people to tell them like things are going good. So you only hear about me, you’ll only hear from me when shit’s not going well. Because otherwise, like, I don’t need your help on the good stuff. I need your help on the problems.
Dr. Jeremy Weisz: 53:42
Yeah, Enrico. First of all, thanks for sharing all that. And I know from my research too, it’s like I’m sure that you observed your family comes from a very entrepreneurial family and the work ethic you have to have to have like a grocery store is. Yes. Every time I walk into a grocery store, Enrico I think this is the worst possible. Like this is all going to go bad in like three days, right? Like when your actual product, I mean, when we’re talking about produce or whatever is going bad, either you sell it or you just lose the money. So I walk into a grocery and I had no family own a grocery store. I just walk in and I know your family, you have to work seven days a week. I mean, you can’t take off when you own a grocery store. It’s just, it has to be open for people. You know.
Enrico Palmerino: 54:28
It was six days a week and it’s like usually 5 a.m. until, you know, eight, seven, 8 p.m. at night. I mean, it was just, it’s a lot because you got to be there to buy produce first thing in the morning when it comes off the docks and trains. And then you got to be, you know, you got to be closing down and wrapping things up at the end of the night when the store closes or, you know, you hand off. So yeah, it’s definitely observed work ethic is that’s when it’s like, you can’t teach. You just gotta either you gotta inherit, you gotta just. I’ve never had an issue working six days a week or crazy hours, but I also love what I do so it doesn’t feel like work.
Dr. Jeremy Weisz: 55:09
Yeah. Well thank you. Thanks for sharing your journey. Everyone check out Botkeeper.com. Check out Xendoo.com. We’ll see everyone next time. Check out more episodes of the podcast. Enrico, thanks so much.
Enrico Palmerino: 55:20
Thank you. Thanks for having me.
