How to build a Million dollar product just by Tax filing

There are two certain things in life

• Death
• Paying Taxes

Quoted by Benjamin Franklin 100 years back which is highly relevant still today and many more centuries to come.

The Birth of Million-Dollar Products from Tax Obligations

The necessity of paying taxes has spurred the creation of numerous products and services designed to simplify, streamline, and optimize the tax-paying process.

• Tax Preparation Software: TurboTax, a leading tax preparation software, was created to help individuals and businesses prepare and file their taxes accurately and efficiently. It has grown into a multi-billion-dollar business by simplifying a complex and often daunting process for users.
• Financial Planning and Advisory Firms Companies like Ernst & Young and Deloitte offer comprehensive tax planning and advisory services. These firms assist individuals and corporations in strategizing their finances to optimize tax outcomes.
• Automated Tax Compliance Solutions Example: ClearTax in India started as a simple tax filing solution and expanded into a full-stack fintech company, offering a range of services from GST compliance to financial products

These products save time, reduce errors, and help users maximize their tax refunds or minimize liabilities, making them invaluable during tax season.

Identifying Market Opportunity with a Single Idea

ClearTax's journey began in 2011 when Archit Gupta, his father, and two friends, Srivatsan Chari and Ankit Solanki, identified a significant market opportunity in simplifying tax filing in India.

Multi-Scale problem:

The tax filing process was notoriously complex, and there was a clear need for a user-friendly digital solution. At the time, the market was dominated by traditional methods and a few emerging competitors like H&R Block. The founders saw the potential to streamline this process using technology and started ClearTax to fill this gap.

Innovation disruption:

The founders had no background in accounting except for Archit father who was a CA practioner

This reminds me of Clayton Christen’s innovator dilemma principles. There is always an incumbent who comes from nowhere and disrupts the market and is not actually from the domain.

Ignoring Market Hypothesis

The founders faced several hypotheses that suggested a digital tax filing solution might not take off in India due to the following reasons

1. Low penetration of Internet services
2. In India, only about one percent of the population were taxpayers, which indicated a low TAM (Total addressable market)
3. Most individuals who filed taxes relied on chartered accountants, meaning neither the government nor consumers used much technology in the process.
4. Building trust among taxpayers to use an online platform for tax filing seemed nearly impossible.

However, they ignored these hypotheses and believed in their vision. They launched a Minimum Viable Product (MVP) to test their idea, focusing on creating a simple and intuitive user experience. This strong conviction paid off as they saw a gradual increase in user adoption, validating their initial idea

How ClearTax hit PMF?

Early Validation and User Adoption

Initially, the founders launched a Minimum Viable Product (MVP) to validate their idea. Despite initial skepticism from colleagues and friends, they focused on creating a user-friendly experience. The MVP saw gradual adoption, providing early validation that there was a market for their solution.

Simplifying the User Experience

ClearTax differentiated itself by focusing on a simple and intuitive user experience.

It designed its product to be user-friendly, enabling even those with no prior tax filing experience to use it effortlessly. The platform automates data entry by importing tax information directly from documents, minimizing manual input and reducing errors.

The platform automated many aspects of tax filing, reducing the need for manual entry and minimizing errors. This ease of use was a key factor in driving adoption among users who were previously intimidated by the complexity of tax filing.

Clear Tax Version 1

Leveraging Strategic Partnerships

ClearTax's strategy to partner with large corporations significantly boosted user acquisition. By offering their service for free or at a discounted rate to employees of companies like the Royal Bank of Scotland, InMobi, and Flipkart, ClearTax quickly expanded its user base. This B2B2C approach allowed them to reach a large number of users efficiently and build trust through corporate endorsements.

Focus User Segments:

It also focussed on Indian citizens living abroad which are aimed at freelancers and small businesses. These clients often work in tech-related fields such as web design and development or are freelance photographers.

ClearTax assists these users in maximizing their tax returns by identifying deductible expenses through consultations with their accountants.

Diversifying Product Offerings

After establishing a strong foothold in the tax filing space, ClearTax diversified its offerings. They expanded into GST compliance, e-invoicing, and other financial services, addressing broader financial management needs for individuals and businesses. This diversification not only helped in retaining existing users but also attracted new ones by providing comprehensive financial solutions.

As per Entrackr, Clear’s revenue from operations surged to Rs 109 crore in FY23 from Rs 59 crore in FY22.

What can we learn as product builders?

Clear Tax was the first YC funded company in India and most of YC principles still apply

• Laser focus on one single problem at a time
• Start from the user experience and adapt technology
• Pick an indispensable problem. In this case, Tax filing is a must-have for every working professional.
• Diversify across the product offering without sticking to one solution.