How We Navigated the Crypto Winter to Keep Our Tax Business Alive [Update]
This is a follow up story for Divly. If you're interested in reading how they got started, published almost 2 years ago, check it out here.
Hello again! Remind us who you are and what business you started.
My name is Carl and I’m one of the two founders of crypto tax platform Divly. We help customers calculate and declare their crypto taxes without the headache. It's been over a year since I shared the beginnings of my journey on Starter Story and it’s time to follow up with a year in review.
Our growth forecasts got slammed by the crypto winter due to the massive drop in crypto trading volumes. Fewer crypto traders and investors means fewer crypto tax reports sold. At the same time, a new directive in the EU has been announced that completely changes the prospects of our industry for the better. It’s a rollercoaster! I suspect that in the coming three years this industry will grow 20x, and that’s my pessimistic forecast.
Tell us about what you’ve been up to. Has the business been growing?
In 2023 so far sales have grown by 70% which is admirable considering that crypto trading volumes have plummeted during 2022 and 2023. A combination of macro conditions and industry scandals like FTX led to a dark crypto winter.
We’ve seen a vast array of crypto exchanges shut down (Localbitcoins, FTX, Bittrex, BlockFi, etc) during this period and companies in our niche choosing to aggressively downsize. We’ve all had to adhere to different growth prospects and ensure we survive.
We were fortunate to raise $400k USD whilst all this was going on which has allowed us to enact a strategy that should keep us afloat throughout the remainder of this crypto winter. Despite this, we made the tough decision to reduce the number of people on our team which sucks.
Previously our company has been very developer oriented, and for the first time now there is a more even balance between tech and growth. I think that progress is natural now that we have a solid product and our offering has matured.
Most of our growth in 2023 was thanks to expansion into new countries. It helped counterbalance the drop in crypto traders globally. This year we took it upon ourselves to replicate this trend and add support for many more jurisdictions in our product.
Happy to say that we now have added the United States, United Kingdom, Germany, France, Spain, Belgium, Italy, Poland, and Estonia. We are becoming masters at serving EU customers and I’d highly recommend checking us out if you have been struggling to find a solid service.
For US customers, I proudly present this insanely comprehensive guide we wrote that dwarves any other crypto tax guide I’ve seen for the US. We even started making video guides starting with the UK.
In regards to performance marketing, most of our growth came from a combination of SEO and affiliates. We had one research article that went viral and featured on websites like Bloomberg. That helped our domain rating and brought lots of backlinks.
We tried some advertising as well, but the results were not great. It was also painstaking since we kept getting flagged as a cryptocurrency service even though we neither sell nor manage crypto - we simply help you declare your crypto taxes! It’s been so time-consuming to manage the appeals processes that we stopped advertising completely.
Outside of performance marketing, we decided to bring our brand up a notch to stand out more from competitors. Our mascot got a makeover by an artist we commissioned and has been deployed all over our website. I think it looks much better, what do you think?
new mascot on the left
We’re also planning to go the other mile and bring the mascot to life. I think the designs look fabulous and look forward to seeing my colleagues wear them to conferences next year! The things you do to stand out.
For entrepreneurs looking to expand geographically, be ready to be disappointed when trying to apply the same growth methods to new countries. Have a backup plan or avoid investing too much in that market until you find a growth hack that works.
What have been your biggest challenges in the last year?
The biggest challenge by far has been navigating the crypto winter. Having an industry drop in activity by over 70% hurts the bottom line and there is no way to sugar coat that. The graph below paints a good picture of this drop in crypto trading activity.
It required us to cut costs, downsize the team, and lower our short term goals. Simultaneously shareholders start questioning your results and so are you. A large part of the challenge is mentally understanding that it's going to require a longer grind to achieve your goals. Communicating this throughout the team without impacting motivation is hard. Especially when colleagues are being laid off.
Despite the market drop, we managed to navigate through by expanding into new geographic markets. Our main market stayed relatively similar in sales year-over-year, so in total we grew sales by almost 70% for 2023.
This was far less than our original expectations over a year ago, but considering the circumstances it wasn't terrible. It was also fascinating to see how similar the sales patterns were regarding seasonality (due to taxes happening once a year).
- Blue line = 2023 revenue
- Grey line = 2022 revenue
I think this is where a new directive from the EU came as a knight in shining armor with a bouquet of roses. In December last year, the EU released information about a directive called DAC8 that requires all crypto exchanges to report customer information on EU citizens to their respective tax authorities starting January 1, 2026.
This means that every EU-based crypto user who has traded on an exchange with KYC will be known by their local tax authority. Currently, we estimate that less than 5% of crypto traders declare their taxes. With this vast regulatory change, that will likely increase to over 90%.
That is at least an 18x growth multiple in our niche market within the next 2-3 years. If we simply keep the same market share as we currently have, we should see similar growth in Divly. If we can keep extending our market share, it could be much more. Regulations such as this one can make or break companies like ours, and we are on the right side this time!
What have been your biggest lessons learned in the last year?
If anything we learned that the best growth channels differ by country. We initially got great traction in Sweden due to SEO so we tried to replicate that in other countries. Yet our theory just did not hold in all countries, sometimes you gotta change it up to get things to work. I’ll share information on two examples:
Japan: We managed to build similar traffic in Japan with relevant keywords and everything was looking great. So we invested a lot in the product to customize it for Japanese citizens. However, when we got to tax season the readers would just not sign up at even close to the same rate as in Sweden. We contracted Japanese conversion specialists to help us improve it, but nothing worked. SEO just did not translate for us in Japan.
Finland: We tried SEO here as well which has had some success, but the key was signing different partners and affiliates. That proved to be a much more potent growth channel. The payoff of customizing the product for Finland was realized because we managed to find an alternative growth channel.
For entrepreneurs looking to expand geographically, be ready to be disappointed when trying to apply the same growth methods to new countries. Have a backup plan or avoid investing too much in that market until you find a growth hack that works.
What’s in the plans for the upcoming year, and the next 5 years?
With the directive from the EU, our focus has been to ensure that we have support for all EU countries before January 1, 2026. We want to be ready to help customers declare their taxes before they get noticed by a tax authority and hit with large fines. As such, we plan to add many new countries within the next few years. This takes quite a bit of work in terms of research and preparing locally compliant tax reports. We are getting quite good at it now though!
When I started this business I knew that eventually some form of regulation would spur crypto tax compliance. Somehow it still surprises and excites me that it is happening. I just hope that we can capitalize on it and become one of the largest companies within crypto compliance going forward. We have a lot to prove before we reach that level.
Beyond January 1, 2026, we’ll see where our product innovation leads us. I don’t want to speculate too much and rather ensure that we build new products based on market demands. Focus on the problems that customers bring us first and foremost.
Building a brand and a company takes time, it will likely take longer than you think it will and that's ok.
What’s the best thing you read in the last year?
Honestly what I find most intriguing to read are all the LinkedIn posts of VCs. Since 2021 the majority have gone from a “growth at all costs” and “unicorn or bust” type mentality to “stay lean” and “focus on sustainable revenue”.
I think it's been one of the clearest herd mentality shifts I’ve ever been aware of, and it's hilarious to see. The generic advice provided by VCs has shifted overnight. It reminds me of the following meme.
Mind you there are still investors that have been consistent in their mentality and follow timeless practices. Often they don’t stand out in the media as much.
Advice for other entrepreneurs who might be struggling to grow their business?
As with many things in life, understanding what you can and cannot impact is important. Zooming out and playing long-term games rather than placing all success on short term results. That’s how we’ve been navigating a 70%+ drop in crypto trading activity which has stunted our growth. If there is a light on the horizon (in our case regulation) focus on that and alter your plans to ensure that you can get there.
Don’t compare yourself to the fastest growing companies in the world, it will only make you dissatisfied and unhappy. It's a very small percentage of companies that succeed with hypergrowth. Building a brand and a company takes time, it will likely take longer than you think it will and that's ok. Having a co-founder helps so you’re not alone. In the meantime, stay focused on your customers and keep them happy.
Are you looking to hire for certain positions right now?
First and foremost we are ensuring that our business will survive until January 1, 2026. We’ll start considering recruiting again when we feel it's safe to do so. Until then we are having quite fun trying to optimize and automate all our activities with a small team. Challenging ourselves in how efficient we can become.
Where can we go to learn more?
Check out our website and our blog. We just started working on our YouTube channel where we plan to experiment wildly in the coming months. If you have a company and want to collaborate on a mascot battle or something epic in social media, contact us at [email protected]. Love to hear from you!
If you have any questions or comments, drop a comment below!
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