Episode #268: Best Idea Show – Doug Ludlow, MainStreet, “We’re Now Saving The Average Company Using Our Platform About $75,000 Per Year”

Episode #268: Best Idea Show – Doug Ludlow, MainStreet, “We’re Now Saving The Average Company Using Our Platform About $75,000 Per Year”

 

Guest: Doug Ludlow is the co-founder and CEO of MainStreet, a startup making it easy for businesses to access government incentive programs.

Date Recorded: 10/28/2020     |     Run-Time: 18:07

Summary: In today’s episode, we talking Doug’s best idea: unclaimed money for small businesses and startups.  Every year the federal and local government have incentives that go unused and MainStreet’s platform is helping businesses access these and save around $75,000 per company! Doug updates us on MainStreet’s progress since we first heard from him earlier this year. He even have an exciting announcement on the company expanding their offering by almost doubling the available credits that companies have access to.

As the conversation winds down, Doug provides some real examples of companies who have saved a large amount of money using their platform.

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Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

 

Transcript of Episode 268:

Welcome Message: Welcome to “The “Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Hello, podcast friends. Today we have another installment of our Best Ideas series. If you want to save some big bucks, believe me, you want to listen to today’s show in full. Our guest was with us this past summer in episode 243. If you haven’t listened to that one already, I highly recommend going back and taking it for a spin. He’s the co-founder and CEO of MainStreet, a start-up making it easy for businesses to access government incentive programs. As a special offer, listeners of the show get 25% off processing fees by going to mainstreet.us/meb. That’s mainstreet.us/meb. In today’s episode, we’re recovering our guest’s best idea: unclaimed money for small businesses and start-ups. Every year, the federal and local governments have incentives that go unused and MainStreet’s platform is helping businesses access these and save around $75 grand per company. We get an update on MainStreet’s progress since we first heard from the company earlier this year. We even have an exciting announcement on the company, expanding their offering by almost doubling the available credits that companies have access to. As the conversation winds down, we hear some real-world case studies of companies who have saved a large amount of money using their platform. Please enjoy this special Best Ideas episode with MainStreet’s Doug Ludlow. Doug, welcome back to the show.

Doug: I am thrilled to be back here. Thanks for having me.

Meb: Last time I spoke to you it was summertime, I was in my mom’s basement in Colorado. Where are you now?

Doug: So I am still in home in San Jose. I’m home with my kids. During summer, they were off, you know, playing around, but we’re back at school, remote school. So I’m playing start-up CEO and I guess principal at my house right now.

Meb: Well, last few months since we’ve had you on a lot has transpired. We’re starting a new feature on the podcast called the Best Ideas Show. What’s your best idea?

Doug: The IRS every year sets aside literally hundreds of billions of dollars that goes unclaimed by entrepreneurs and small businesses. Like let’s find a way for them to help collect the money they’re owed.

Meb: So long-time listeners will be familiar with this topic. I’ve talked about it on the personal level through the unclaimed assets, unclaimed.org. And I was really proud of myself that over the years we’ve been able to find a million dollars of unclaimed property for our listeners, but then you come out, you do a start-up, we chat, and in the ensuing six months, you guys have found how much for companies?

Doug: Well, the product’s existed for, you know, we launched in early April, but really launched this new version that was much better in July, right around the time we spoke. Since July from today, about three months, we’ve saved $40 million for start-ups.

Doug: Listeners, let that number sink in. We’ll link to this in the show notes, the first episode with Doug, 243. And when I heard him say this on Twitter, I said, “Okay, we got to have you back on the show because this could be one of the most impactful shows that our listeners could experience.” And so walk me through it. Without them having to go listen to whole episode, tell us the basic 10,000-foot view of what you guys do, your story.

Doug: Sure. So, for context, there’s this giant world of credits and incentives that most entrepreneurs, most small business owners have no idea exists. The credits and incentives market is a $300 billion global market with more than $150 billion in the U.S. alone. But this market is almost entirely dominated by the world’s largest of companies, the Boeings, the Walmart’s, the Amazons, these companies with sophisticated government relations teams, they’ll discover these credits and end up saving the companies billions of dollars. So one way to think about what MainStreet does is in some ways we act as the mini-government relations team for your start-up or small business. What we’ve done is we created this marketplace. We’re building to the more than 2000 credits and incentives that exist in the U.S, everywhere on the federal level from, you know, research and development tax credits, to work opportunity tax credits, all the way down to the local ones. You might not know about at all, which like $10,000 for hiring someone in downtown Sacramento, California. So we’ve created this marketplace and allow people to access it through this membership in MainStreet that makes discovery super easy, application super easy, and we’re now saving the average company using our platform about $75,000 per year. And it’s just by claiming credits and incentives they didn’t know they were missing.

Meb: So for the listeners of the show, I said this on Twitter the other day because I think this is such a good example of free money. So I said, “Look, if you’re a CEO or a founder and you don’t go to MainStreet and at least apply to this because it’s free,” right? Free to go through it.

Doug: Totally free.

Meb: “Then you’re just being lazy.” Or, I said even better idea. I said, “If you’re an employee at a firm, you can email the CFO, the founder, the CEO, chief operations officer and say, ‘Hey, have we tried this? Do we do this?'” Because you said the average credit is $75 grand. I mean, imagine being like a 25-year-old that alerts your CEO to this, you save the company a bunch of money. I mean, that’s like fast track promotion bonus, right? This time a year, too. So who are the target companies, minimum number of employees and revenue to kind of maximum number to where they’re probably doing it on their own?

Doug: So eventually, our entire market will be the broad SMB market, right? The 40 million small businesses that exist that need a lot of help. Today our focus is pretty much exclusively on technology start-ups. And there’s a reason for that. There’s a bunch of credits and incentives that are really disproportionately valuable for these start-ups. We also want to see if we can build this giant network on the back of a pretty well funded industry. The range we work with today tends to be in the pre-seed stage where maybe you’ve raised $10,000, $20,000 from, you know, friends and family, all the way up to series B, series C to where you’ve, you know, raised $20 million, $30 million. You may have a few hundred employees even by that point. That tends to be our sweet spot. Once you hit series C and beyond, you tend to have your own CFO. Eventually, our product will scale to work with these companies. The magic of MainStreet is you connect it to your payroll system, we automatically discover all these credits, right? As a company gets bigger and more sophisticated, that magic isn’t quite there yet, but for the small company, it does work like magic.

Meb: For those that aren’t VC funded, let’s say I’m just a company that’s been around located Arkansas, Maine, Colorado, Washington, whatever, and established, but I’m listening to this, I’m saying, “Well, we absolutely don’t do any of these credits. Is there a certain range as far as headcount or revenue that you would say is probably the sweet spot or is it pretty variable?

Doug: It’s actually entirely variable. Let me break it down for like the research and development tax credit, right? That is a massive federal credit. There’s also like the same thing on a state level. But that credit specifically is designed to scale from when you’re in your garage, you just have one person all the way to where you’re an IPO. Like Amazon takes the R&D credit. There’s just a variety of factors on how you claim it, what are the documentation required? That scales as you grow, but this is an example of how a company that maybe you’re profitable, maybe you’re not, maybe you’re DC-funded. Maybe you’ve been bootstrapped. Maybe you’re like 2 people, maybe you’re 1,000 people. Odds are, we’ll still be able to find something for you, especially since a lot of these…the best programs here scale as you grow.

Meb: So I figured it’d be helpful today, because you guys mentioned, you know, there’s kind of been two main levers up till now, but you have announcement that that’s going to change here in the not-too-distant future, right?

Doug: That’s right. So I’ll use my visit here today to announce that we’re about to launch 100 new credits on the platform, covering every state that has a research and development credit, every state that has something called the 21st-century job credit, which is hiring someone who’s a well-paid person, you know, in that state. At this point, we’re going to have probably two orders of magnitude, more credits on our platform than other people in the space, and that’s just going to keep getting larger and larger. So we’ve primarily helped people with one or two credits now. At this point, we’ll be able to help with over 100 and soon after that, over 1,000. So it’s really kind of an exciting time for us.

Meb: Has your team discovered anyone’s where you read it and you’re like, “That’s the weirdest credit I’ve ever heard of” or “It’s odd that like, you know, the state of Illinois does this?” Is there anything that comes to mind?

Doug: Oh, yeah. No. There’s a ton of stuff like that that clearly were made up for one specific person, like buildings that are 150 years old located at the specific crossroads, you get a credit for doing X, Y, and Z, right? And occasionally those things will slip through, you know, state legislatures that, you know, that’s the benefit of having a lobbyist. Most of the time, more and more though, we’re seeing credits that are designed really to promote distributed work. And that’s been cool to see, right? Actually, Michigan just launched yesterday a $15,000 incentive to go and move your remote job to Michigan. So I know a lot of people who grew up in, let’s say Detroit, the surrounding areas and now they’re getting, you know, $15,000 from the state to go back. So those are the types of things I actually think that are kind of cool that you’re going to start to see more and more of in the incentive landscape of the United States.

Meb: It’s an obvious, perfect software solution where, you know, trying to monitor these various incentives and credits as a CFO versus someone who can automate it, do it across, not just 2, but a 1,000 eventual concepts, there’s no other way to do it than software. I thought it’d be really helpful. You know, there’s people listening to this, and listeners, just to make this clear, we’ve had people email us since the last show with screenshots saying that it has saved them tens of thousands of dollars. And I think one was $50 grand right off the bat. And so this isn’t a theoretical exercise, but for those who still think it’s theoretical, could you walk through, and you can just kind of like black line out the names, but maybe give us a couple case studies of companies that have been through it, give us an idea of the tangible benefits of what has worked so far.

Doug: I think we found that almost any company that we talked to, we ended up saving them some money, and the reasons will be different, right? So when we talk about three different examples of these companies and why they were able to benefit. The first one is an issue of like discoverability. A lot of start-ups don’t even know that these credits exist. So, for example, there’s a company that was based in the Midwest, roughly 40 employees, they were a VC-backed company, raised $10 million and just crossed $4 million in ARR. They had an accounting team that would do their books, keep their P&L and they had never once in the, you know, they’d been around for what, four or five years and never once taken the R&D credit, didn’t even know that the R&D credit existed. So we will help them claim the entire federal R&D credit, which was $250,000 back to that company for just for 2020. We did it in less than an hour. So they’d missed out previously by not applying for this for $500,000, just with this one credit alone. With this one company, we’ll also be adding the state credits. Again, they’re based in the Midwest. There’s a ton of 21st-century job credits. Odds are we’ll be saving this company over the next, like probably three or four years, well over a million dollars. That was an issue of discoverability. This company was fairly large and yet their accountants didn’t even know this existed. That’s one.

Another thing we do with this market, you know, tax credits, you may not be able to receive… Let’s say you identify a tax credit you’re eligible for, you might not get that check from the government for 6, 9, 12 months. MainStreet offers a way to like actually advance you some of that. So we bring liquidity to a marketplace that’s pretty illiquid. So here’s an example of another company based in Boston with four employees. They’d raise a couple million dollars. They’re a VC-backed company. They were able to receive $20,000 this year in cash, right? And they chose MainStreet because we can get them the cash now. Twenty thousand dollars, you know, that’s $2,000 extra month. It helps you burn. That’s real. And this company specifically like poured this money back into their business in the form of like paid acquisition and unlocked an additional $100K in ARR. So the added liquidity in a marketplace that normally… It’s not even a marketplace, right? It’s that the government writes you a check 18 months later, really has tangible benefits for a business.

And finally, like one of the final major reasons people come to us is the affordability. As you mentioned earlier, it costs nothing to sign up for MainStreet. It’s absolutely free. And we’ll actually tell you all the different credits you’re eligible for. You can then choose to go off and do it on your own. Most people don’t because we make it so easy. But, for example, we had a start-up we’ve worked with who had actually worked to claim, for example, in this case, the research and development credit last year with a specialized accounting firm and they charged them $20,000 to do their credit and didn’t know that they could take this against their payroll. So this company ended up spending $20,000 and it was money down the toilet. It was terrible. It was incredibly expensive. They couldn’t even use it. We helped them in 20 minutes and they’re on track to save $30,000 in credits this year. Which like, again, not only will [inaudible 00:13:47.385] advance in that cash, but they’ll be able to receive the check from the government because they’re utilizing it as their payroll tax. They’ll start getting that in April. So just to recap, like this is very real. One of the knocks against MainStreet sometimes it seems too good to be true. Well, there are these programs that are incredibly valuable that most people just ignore and we help with discoverability, we help with liquidity, and we help with affordability. It really makes us I think a pretty compelling offer.

Meb: You know, it’s funny, and my mind starts worrying as I hear all this, and I’m sure you guys have 1,000 things in the air, but it’s almost like right now it’s like getting all the money that’s owed to you. But it seems like in the not too distant future, you could also go to a company, kind of what you were referencing about the Michigan idea and say, “Not only can we get your money back, but we could optimize. Here’s a scenario that if you guys wanted to do X, Y, and Z, this would also save this amount of money. Hey, you may have to move to, you know, this small town in some tiny state somewhere, but just FYI, these are some options available to you.” That seems like a cool idea. What else do you guys have in the works that you can share? What are you thinking about? I know the initial challenges are probably just growth and servicing all the inbounds you have from “The Meb Faber Show,” of course, but what else are you guys working on? Any general thoughts?

Doug: Yeah. So lots of things we can share there. As I mentioned, one of the things that MainStreet will always be doing is adding more and more credits and incentives. Right now, by the end of the year, we’ll hit roughly 200 on our platform. By the end of next year, we hope to hit 2,000. We’re experiment doing a few different cool financial products that people might be able to use. Like right now, when you receive credits, you get paid through MainStreet, but we will be spinning up a process that will be able to get you your money deposited directly into an FDIC-insured checking account. You deposit some in a money market, you’ll be able to use a MainStreet branded card to help spend your money. Not only we’re helping you get, you know, money you didn’t even know existed, we’ll be able to find ways for you to spend that money in ways that are most valuable for your company. So look for that stuff in Q1 of next year. And really just like our goal is to provide almost a set it and forget it service to where every month we’re adding new services that maybe, you know, your company may be eligible for.

Meb: Yeah. So how does it work? So if like, so let’s say I’m listening to the show, I say, “Okay. I believe Meb’s not totally full of it. I’m going to reach out to these guys at MainStreet.” Walk us through how it works again. Like is it a one-time sync or is it something where you’re syncing every month, every quarter, every year, shipping out new ideas? How’s the process go to get the money back?

Doug: When we started building the company, gosh, at the beginning of this year, this product, we originally envisioned this as a thing we do one time, right? To where we’d use our software to analyze all the signals within your accounting system and your payroll system, identify which credits you’re eligible for and apply. Well, we had some phenomenal engineers on the team. The system realized, we can start to do this in real-time, right? We can start to run this every single month. We can run this every day if we wanted to. So we’re constantly checking, not only for which credits and incentives you’re eligible for, in this case, on a monthly basis and syncing it with your business systems, we’re then able to provide you a cash advance on a monthly basis as well. So it’s a type of thing to where hopefully your relationship with MainStreet should be, you know, maybe 30 minutes a year worth of like answering some questions here and there. But then every month getting a notification saying, “Hey, you’re eligible for this. Here’s how much money you got.” Or, “Hey, here’s a new type of credit. Do you want to take it? Yes or no?” So it’s very user-friendly.

Meb: Doug, anything else before we get going? I wanted to keep this short and sweet today, that way people can listen, go check it out. Anything else on your mind we didn’t touch on?

Doug: No. Just grateful to be here. And if you’re interested in giving us a shot, go to mainstreet.us. Sign up and see if it’s for real. And I guarantee you you’ll probably save considerable amount of money.

Meb: Thanks so much for joining us today.

Doug: Hey, my pleasure.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe the show anywhere good podcasts are found. My current favorite is Breaker. Thanks for listening, friends, and good investing.

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