The Build vs. Buy Debate, GenAI and Section 174 | Kelly Vaughn

**Dan Lines** (0:00)
I'll kick us off, I have a lot of thoughts. I can't think of any more of an exciting topic to start with, Conor, than taxes.

**Conor Bronsdon** (0:07)
I know you love taxes.
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Hey, everyone. Welcome back to Dev Interrupted, we're excited to be with you here in the new year, and we have a fun treat for you. I'm obviously Conor Bronsdon, you've probably heard my voice before if you've listened to this show, and I'm delighted to be joined once again by our original OG host, the Linear B COO, Dan Lines, and he is also a fantastic co-founder, so we have some founding topics to dig into today. And we have one of our fan favorites who is going to be a regular guest this year and kind of serve in a co-host role with us, and that's Kelly Vaughn, Director of Engineering at Spot AI, an entrepreneur in her own right, speaker. Kelly, we're so excited to feature you throughout the season here at Dev Interrupted as our regular expert, and having both you and Dan here to dive into some of these topics is just ideal. Thank you so much for coming on.

**Kelly Vaughn** (1:39)
I'm so excited to be doing this even more regularly. You'll get to listen to my hot takes or mild takes or really terrible takes, a whole lot more now.

**Conor Bronsdon** (1:48)
And I think your hot takes in particular are going to be great with Dan because I love to push him on things a little bit and see where his reactions are because you'd be surprised but he has some good hot takes too. We're just going to make sure he gets them on recording.

**Dan Lines** (2:00)
Not as good as Kelly, but Kelly, it's awesome to have you. I am super stoked to be doing this with you.

**Kelly Vaughn** (2:06)
Same, same.

**Conor Bronsdon** (2:07)
So let's kind of dive right in. We're going to discuss some of the top topics we've heard in engineering leadership circles lately and a couple of topics that have actually been driven by listener questions. And listeners, I'll just note here before we officially start, if there is a topic that you want to hear us discuss, let us know. We want to hear from you whether that's on LinkedIn, Twitter, our substack, and we'll try to get it into an upcoming episode. We'll be doing these episodes once or twice a month, time permitting. We have a really exciting initial topic, and that is taxes.
I know everyone's so stoked to kick off the episode with this, but both of you, I think, are uniquely positioned to have this discussion because you both have experience working with engineering teams worldwide, as well as in the United States where we're all based, and you've both been founders before. And recently, we've seen this discussion Ignite Online where many tech companies have begun to move product and engineering operations outside of the US due to costs.
And some in the industry are now theorizing that this is directly related to the recent tax code change in section 174 of the US tax law that has put this into overdrive. Gurgle, the pragmatic engineer, in particular, has started to bring this to light over the last few weeks. And to give a quick summary for our audience, basically, all costs related to R&D, so that's software engineering, including labor for software development, these costs, you used to be able to write them off as expenses and treat them differently, and it would help lower your tax burden in the United States. Now, though, these costs have to be capitalized and amortized over five years, or 15 if labor is done outside of the US and many feel this is deeply impacting bootstrap startups. I'm going to give one example before I dive into Kelly and Dan's thoughts. And this is from a small business owner in Pennsylvania that said our taxes increased 500 percent. It's so bad that if it's not repealed, we'll find a way to move our company to Canada, where my co-founder is located. We're a high-growth technology software company, so it seems this law is doing the exact opposite of its intent, pushing business out of the US rather than keeping them here. It's having a major impact particularly on bootstrap startups. Is the era of U.S.-based software startup dominance coming to a close?