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Heather: Guy, who would you like to have coffee with and why?
Guy: Wow! I would have said Steve Jobs, but obviously that can’t happen anymore. So, thinking about where we are right now, probably I would say Obama. If you ask why, I mean that bloke inherited one hell of a mess in the US and had somehow managed to bring their country back out of recession. He was a black African-American President. He is an avid basketball fan, so am I. Obviously economics is a big concern for him as well as the global well-being, American well-being and mostly global outreach with America. So, I think a day in the life of Obama would be a really interesting coffee topic.
Heather: Yes, absolutely.
Guy: I don’t know what I would learn, but I think I would just be in awe of just listening to what he does to get done on a day. I think that would be an amazing experience.
Heather: Yes, absolutely. I do open up to people living or dead. Steve Jobs is also a wonderful choice.
Guy: Jobs and Mandela are probably my choices.
Heather: I always think, if I bump into Obama, I would say to him to just get rid of checks. Imagine what you could do.
Guy: I guess the hard part for that is there are some people employed by that system, and I’m not sure they’ve got the complete tax factor to do it end to end. So, I was hopeful that is being built in the background and we’re not just hearing about it because it’s not complete. We’re just reinventing the whole banking system for them.
Heather: Guy, what inspired you back in September 2009 to found Interactive Accounting?
Guy: I had a career up to that point, in early 2009 in mid-tier accounting firms. I’ve done some sort of ITR, individual tax returns, bookkeeping, accounting, and I’ve been lucky enough to work for some entrepreneurial accountants in a few years leading after that. We looked after pretty much exiting founders of very large companies here in Australia and private enterprises. So, my hat changed from being compliance-focused into looking forward and talking about next year and not talking about what just happened. So, there was that combination along with the technology coming out.
I saw there was an opportunity for me to take ownership in that firm, but I decided I didn’t like wealth management because I had financial planning. So, I took a holiday and whilst I was away I came up with the notion of being interactive was more than just describing what happens between two people when they sit down and talk but replacing that with the digital medium. So, Interactive Accounting was born out of the hope and the wish that everything can be done online and can be done more efficiently.
Better decisions can be enabled for small business owners to make better decisions faster, so more information faster to them will equal that. And I guess that was the real cause and source behind it, but the whole notion came up from the idea that more interaction with clients would lead to a better outcome for them, their businesses and their families.
Heather: Absolutely. That’s really interesting. It’s surprising when you take a step back and go on a holiday, as you suggest, and take some time off from what you’re doing, you can actually stand back and see what the real big picture is.
Guy: Definitely. I think a little time off and a little perspective is always useful. I’m no longer in the day-to-day there at Interactive, which has provided a whole lot of perspective. Hindsight is 2020, we’re looking forward to our best, but it’s far anyway. So, it has been really good to have some reflection how that came to pass.
Heather: Why do you think it’s important to differentiate your accounting practice by sort of focusing on a niche area?
Guy: If you’re all proactive—and a lot of accountant use this terminology—then you’re still the same if that’s how you describe yourself. In the early days of Interactive Accounting, I was trying to put that lost description into words by a family friend who is the Managing Director of Australia’s largest exhibition hire company. I sat down and had coffee with him. Basically, the question was, Guy, tell me about Interactive Accounting and why are you different from the guy down the street?
I came up with we’re doing things online. He goes, cool, everyone can do things online. What’s your one sentence? What’s your one-liner? What separates you from everybody else? And that kind of hit home for me. So, I think it’s really important to hit the niche because you need to have someone work away from a meeting and go this guy or this firm, is an accountant for dairy farmers and all their ancillary entities. If a dairy farm was looking for an accountant, one, you’re really easy to find and that’s what you specialised in. And the interesting part is that it’s interesting from a marketing perspective, but if you think the value, which is the looking-forward part which we will talk about later, if you look after 50 dairy farmers, you’ve got a pretty bloody good insight of what’s happening in the industry. You’ve got benchmarking capabilities. You’ve got full deals that you could do for dairy productions and sales and all kinds of things.
I know next to nothing about the dairy industry aside from the fact that my mother was in Bega, a big dairy area. But that niche, all of a sudden, it’s like you’ve got the onus on that core industry and you can get the ancillary entities to go with it. So, picking a niche allows you to be, not only just well-known for understanding your clients businesses in that particular area in terms of land area or industry or what not. But it also gives you a foresight into what’s coming and it really adds some value into your clients business and really boosts your own experience and that’s why I think it’s really important to get a niche, so you can do that readily, easily and people will pay you to do it because that’s what you’re good at.
Heather: Absolutely. I’m a huge fan of doing that. I also think it actually enables you to simplify what you’re offering because you’re constantly not out there looking at all these other parameters that you need to worry about. You can just focus in on one area to a really deep level.
Guy: Absolutely.
Heather: Within your own firm, you were focused on systemizing your firm to achieve a greater ROI or return on investment, how did you go about doing this? What platform did you do it on and is this where you kind of started to recognise the need for Practice Ignition? So, the first question there was, how did you go about doing that?
Guy: How did we go about doing that? The first thing and one of the most important things was actually to acknowledge that you’re building a new type of firm. I think we opened our doors in 2010 on the first of January. So, bear in mind this was going back five and a half years. A lot of the software that people used today didn’t exist nor was it all connected. If we talk about Xero, which we chose as our platform, didn’t have an Australian version. It was just the global version.
I think Wayne had just started as their first employee here in Australia with Sally, his wife. But I looked at all the online platforms for ledgers for small business owners and Xero was the easiest to set up. It had bank feeds. It was a global company which aligned to our inspirations for the firm. But it also had some really nice integrations into things like practice management even though it’s just a workflow tool back then. Let’s face it keying in a tax return if you had all the data, wasn’t that hard. Maybe a pain in the butt, it wasn’t a huge time factor for a small firms. So, we chose Xero as the core.
Once we’ve got our team up and I was able to hire, which I think the key thing was to hire Lisa Callaghan to be the CFO and the tax person for all our clients. I literally stepped back and stopped doing tax work after the first 18 months of our firm being operation. I went to work on the business. So, I tore apart everything from marketing through to what we used to share knowledge in the background, email, integration, CRM practice management. Basically, this was how we’re going to do everything online. We found tools. Back then, I don’t think Zapier existed back then existed in 2011. They were using things like OneSaas and a few other connectors to sort of connect platforms that maybe didn’t connect with each other automatically. We tried to look for VOIP solutions and VOIP servers in the internet.
Essentially, we’re trying to build this connected suite so we could scale and focus on our ROI. If you take travel time, downtime and manual up and down data, if you take out the need to have a receptionist and the need to have an admin, all of a sudden you can offer a priced service and have greater margins than you would have if you had gone the cost strap at an early stage. And that was basically our goal and that was our proof of model.
We talked about Practice Ignition. There are two things: the onboarding and management of the client relationship when you move from billing you once a year to every month. There are wages every month that we pay, rents every month, website hosting. You name it, everything comes in monthly. So, we’re adding the software costs. We need to be able to bill monthly. We need to process payments monthly. We need to have contracts for our clients. So, Practice Ignition was designed basically to enable our firms to move into the cloud, but the long-term vision for those companies still hasn’t been realized. Maybe we can talk about that later, but it sort of began on the whole, what is the client experience exactly? If you have no clients, you have no firm.
So, a client experience is always very prominent in terms of where Practice Ignition is heading and in terms of being able to attract, maintain and retain clients. It gives them an uber or air B&B like client experience. That’s our long-term goal on the client side. For the firm, I wanted to automate growth—how to firm bring on clients, measuring where they come from, being able to see what services they undertake from your firm, automating things like referrals, being able to offer things like deals within the platform.
Obviously, your revenue doesn’t equal what your target revenue is for a month and in the future. We’re really just trying to automate all of that so that a CEO and a manager or partner understands where your firm sits in terms of, where it should be and looking forward as well as looking back in being able to get more analysis around what clients, what services you’re really good revenues and all those sorts of things. I probably overstep the boundary there, but the whole idea essentially started from the back office having this scenario and the front office is all completely manual and pretty much all funded and expanded by the use of client services or shared services, admin and partner time.
What would happen to the firm and the admin to chargeable accountant ratio, if we got rid of that and what the client experience could be enabled if all of a sudden everyone had an engagement, and we knew what the services were and we knew what information we needed from them because we understood what services and what workflows were attached. It essentially allows every accountant to be proactive and blow their competition when it comes to experience of the clients and give the clients automatic referral code. They tell their friends and now they get a kickback whenever they help sign in a client to your firm which essentially brings the traditional way the firm is ran. It’s exactly the same; it’s just really expensive to do that. What we’re trying to do is to just strip it all down and make it easier.
Heather: It’s very interesting that you actually started off by saying that you just tore apart the current systems because I was wondering whether you would be starting and they were available to you. But you’re evolving as they’re evolving. Would you agree with that? Were you sort of beta testing? Or, were you telling the guys who were providing the solutions what they needed to have in the solutions to meet your needs?
Guy: Yes, a feedback is huge. I’m very fortunate I have some great relationships with a lot of the Cloud providers and the original CEOs like Gavin and Christ of WorkFlow Max before it became Xero Practice Manager and a bunch of other solutions, payment gateways. Although I love technology and I had envisioned that I wanted to build a tech product one day, I really wanted to find something that was going to be unique. Practice Ignition and its first initial market around the whole onboarding and engagement and quoting was born out of frustration and not being able to get what we wanted. So, I jacked together, sockets back in the day with our website with automation books going into things like WorkFlow Max. We hacked together code to generate recurring invoices using Ezidebit with our developer out of a Google sheet based on certain parameters on a branded page. So, it looked like it was us. So, we spent a lot of time and money on doing everything to try and automate it without having to build something.
The further we went down the line, we need to understand from the position of the software company. They take one of those feedback. Obviously, you tend to attract a certain type of customer and you build a momentum going the certain way. If someone is suggesting something that doesn’t quite match that, they’re focusing on their niche. So, there was a huge gap on a couple of things. One is the recurring billing for software service providers, but focusing on tiring that billing in the contract into WorkFlow and invoicing. Why that still doesn’t work for service base services- I don’t know. But we went and built it so it does now. Basically, that was the initial premise of the core product and that go to market strategy. Then, we know a lot about an accounting firm and their client base because of that. So, we’re going to build off that.
Heather: Cool. I think listening to what you’ve said there, I was kind of thinking you were going to come in and say you just started with all of these packages. I listened to what you said that perhaps the older accountant out there who is in a more established firm can at least get some comfort in knowing that you have to rip apart what you were doing. So, it’s maybe backburning the forest to actually drive the business forward.
Guy: Yes. I have no idea what it looks like from the outside. The Interactive Accounting has been a pretty successful experiment. The hours Lisa, Garth, Ryan and myself have put in… like I haven’t had a holiday for since 2009.
Heather: When you founded Interactive Accounting.
Guy: Yes. So, anyone who thinks from the outside has been, is he out there? It’s completely misguided. I’m not saying that you shouldn’t go down the path and do it, but we like weekends. For my first three years, I think I was doing 100 hours+ a week excluding Christmas basically. So, that’s 6 in the morning until 11 at night. Mostly, there were some clients working there, but it was mostly, how do we make this thing scalable? I don’t want to grow a business that has a 15% net profit; I want to grow a business that can change our clients’ lives and has yields about 40%. So, how the hell do you fix that problem?
Particularly, the threats are coming from the technology itself. I don’t mean to scare anybody. It’s just like banking. There was an uproar when branches started to close here in Australia. There was an uproar when there were ATMs instead of branches. Now I dare you to find someone who doesn’t prefer doing online banking and banking from their phone than going to a branch. If that is the case, then that was in the late 90s. That’s a 10 to 12-year gap. Technology adoption is speeding up. So, let’s say it is seven years for accounting. Then, you’ve got point-of-sales systems which can now talk digitally. I don’t think there is a really large time frame for the whole looking-back. I think there will be systems that will come in. There are things like Receipt Bank where you set up rules and most rules are based on the knowledge around, does this look right, looking back at a months P&L.
Know that there is a ratio that is way out. Let’s go and dig around and fix some things up. Change the systems for next month. Then, let’s talk about moving forward. Given that in mind, we wanted to make sure that our compliance business was as scalable as profitable as efficient as possible. The guys are still working, and we’ve added a bookkeeping on Interactive. We make sure that we understand how we can automate these files and get better data to look forward to. I just think it’s going to be really interesting to watch the next 7 years.
My mother now didn’t have a phone four years ago. She’s got everything Apple. She orders everything online. She finds it a pain in the butt when she can’t order a plain white door with specific measurements to be delivered to her online. She has to fax it and she doesn’t use the fax machine anymore. Things like that are blowing her mind, I hate to think about when she expects the fact that she can facetime her relatives living out of the country. That’s all her experiences, how long is it before that comes to the accounting industry? That should just happen automatically. I don’t want to be charged for x. I want to talk about going forward and I want to be charged for that
Heather: Absolutely. I think in terms of what you’re saying like looking back and looking at the ratios and doing reasonable necessary checks on them, I think the artificial intelligence will come in as a layer over that to actually prompt you to say that this looks unreasonable. You need to go and look at this.
Guy: Yes, that is true. That probably is automated. I don’t know how smart artificial intelligence is going to get, but it could get very very smart. I think it’s still going to be the art of knowing when and how to fix it. The Q&A with the client and that personal attachment. Once again, I think the conversation will change from, is there GST on milk to your net profit ratio last month was x, these costs blew out- does that make sense? Do you think this is going to be an ongoing trend? Let’s factor this into your updated forecast and let’s talk about how to mitigate that risk. That will be the discussion, not questions around data entry.
Heather: Yes, questions around compliance. Yes, the conversation has to change. As you’re probably seeing, I’m seeing a lot of people sort of terrified in the industry that their areas are going to get taken away, but they just simply need to have a conversation and kind of look at it from a different perspective because a lot of these guys actually have that knowledge onboard and can actually do that. They just need to look at it in a different perspective.
Guy: Yes, exactly. I think they all have the skills. Like you said, they definitely just need to realize it. Definitely, accountants just start being so afraid of their clients in some respect of challenging them of their thoughts around the future of the business and what’s coming. They have the ability to be thought leaders which is the most exciting part I think. People are worried about the graduates and the future of accounting and teams coming through.
The generation of adoption of technology is obviously a huge thing. So, if someone is interacting, there is a higher chance you find someone with personality. I want someone who understands the technology and someone that can talk to the client. I think, in our industry, it’s safe to call those people “unicorns”. No matter what age. No matter skill. But one thing that we can try them on is probably the accounting side. But the thirst for technology and also that personality is something that is very hard to train.
I think it’s really a case for the ongoing adoption and growth of teams. In that way, it’s just going to be a different conversation. It needs to change. The people who are adverse to change are those people who are going to end up walking away in the far south from their firms because their staff are not going to buy off them for the rate someone wants to sell it. I think, if we look at the messaging that is coming out, ironically accountants value other people’s businesses. Yet, when it comes to their own, it’s almost like a builder, their house is not even finished.
So when it comes to an accountants firm business the drivers or multipliers for any method evaluation on a business on a business, whether profit-based, revenue-based or otherwise, are systems, process and procedure and a key management team in place as well as the risks associated with that key person leaving. So, if you’re that one person that calls all your clients, the value of your business is you. There might be a small multiple. But the people buying that business are going to affect the likely retention of those clients when you leave. It will either be in the price or in the claw back provisions. Either way, if you haven’t done that, you shafted. Whereas you see businesses in the UK, that sold for five times the revenue because it was completely automated.
If you think about that, small business can have a massive return on investment later on. But you need to invest in making sure that, if you leave, your business should run better when you’re not there. Hopefully, when you come back in, it added value in particular ways. But you should be focusing on trying to be a business owner and not a business manager.
Heather: To sum that up, if they’re purely focused on compliance and not interacting, they’ve got nothing there at the end of the day to sell or it’s just going to be a very low price.
Guy: Yes, exactly. If you start an accounting firm, you’re an entrepreneur, whether you like it or not. It’s just, are you going to be a successful one? It’s completely up to you.
Heather: You have touched on this, but would you like to sum up for our listeners so they have a really clear idea what Practice Ignition, the next solution that you’ve developed, does?
Guy: At the present time, what we have in the market right now is client management licence, so client life cycle management. The principle is that we tie your contract with your clients depending on what you use in your back office. We tie the contract to the deployment of your workflow to the deployment of your invoicing, and that could be time cost and a project-based monthly reoccurring with catch-up or any of those things. Then, we can also tie payments in depending on where in the world you are. Payments just went into beta in the US. US and Australia, we have payments being both direct debit or ACH in the US and credit card.
I think it’s really cool. You have a contract where you have “no contracts- no work” which is great for your compliance. So, your industry bodies would have people going through the quality reviews for the CPA, CA and IPA are flying through because if there is no contract, no work, it’s all signed, it’s all digitally tracked. That’s essentially what they’re looking for so there is a big tick there. But what’s really interesting is when you get the notion of scope creep. So one of the biggest gems in side Practice Ignition is you have an agreement with the client whether it’s a monthly retainer, end of year job or a project. It doesn’t really matter. There is always bound to be some element of scope creep. So, what the levelling you get, ends up being different to what your initial scope and perhaps gave the client a price on. In PR, you can do that over the phone, engagements, and send out the variants to the clients even though it’s just an estimate. Then, they can sign off on it.
The biggest killer for firms is literally losing their bottom line because a client will come to them in the hour of need, and say “Guy I need you to do a three way forecast because we have this opportunity to merge with another firm, or it’s a take on an investment. We need to present this to the bank.” “No worries – send me the information and I’ll get that to you soon as I can”. Conversation ends. Three months later, you pick up the phone or you send an email and you get a phone call back with the invoice and the discussion… “Guy, what’s this invoice for?” “That’s for the one you needed help three months ago”. “That’s great. But if I’d known that, I wouldn’t have asked. I’ll pay you half”. This is really common. I’ve had many of these discussions. So halve comes off your bill and which essentially impacts your bottom line, your right offs is huge. Those are two problems that we’ve got to solve.
Right now, we have the whole business analytical side, so we can tell you which clients what services, what revenue is assigned to what partner or what team. Really start to dig in to that sort of notion and where we are going from there in the next couple of months, which is the business analytics dashboard which would be what I would want to be the Chairman at Interactive Accounting- top down and also manager level and those sort of levels down in the firm and be able to segment the data and trends looking forward, forecasting and average revenue and when you are going to have fee gaps because we know what our contract revenue is. That’s really exciting.
Then, in the client side, is what’s going to happen next? We call that, What Happens Next Door Flows”. This is not very creative at the moment and that won’t be what the module is called. The other one will be about what services you have for your clients in Practice Ignition. Would you like us to counter the data collection for you and send reminders? Ten days before the end of the quarter, Heather, awesome job and it looks like you’re rocking this quarter. Just to let you know, it’s ten days on the top, you won a bookkeeping package. These are the steps you needed to do at the end of the quarter just to make sure you want to get started on that. Wow, a proactive email from my accountant! He knows what I have in the package. Awesome!
The days ends, congratulations! You made it. Just reminders, check your emails. Basically, it’s controlling and starting to enable all of the surveys and data collection you want as well as basically making the clients feel like they’re getting a really good experience from you as the bean counter. Then, the end result of that is collaborating in a portal of such, in which case, they can see who is working on their jobs, get reminders on due dates, reminders on things that they need to do, access of engagements, share public files in one spot. Where we’re different from everybody else is we don’t want to change the way you run your back office. So, we just want to surface it all up and you choose what your client sees and you choose what your client gets that flows module. It would be separate. You can use that or not. It’s the same thing for the portal. You can use that or not.
The idea is that, if you want the automation there and you want to provide that 10X experience for your clients, it will be available in one spot. As long as you’re on the cloud-based backend, you won’t have to change what you use. So, whether that’s Xero Practice studio suite, which we integrate around the world or some of the other suite that’s are coming up as well. So, the whole notion is basically merging your back office online. We take care of the front office. The front layer, that being the front interaction. The idea is we want to sync everything. So, the client sends you something that goes into the back office where it’s supposed to update the team number. It’s very simple in concept; it’s very hard in delivery. So, we’re looking very furiously at all of the above. That’s a very broad overview. We have a lot more that we want to add to all of that. Essentially, that’s sort of our one way in our roadmap pre-Christmas. That’s what we’re aiming for.
Heather: Excellent! I think a lot of the listeners will be very excited by what you’ve just shared and will probably be contacting you after this session.
Guy: Hopefully.
Heather: Following on from that, can you yourself write code and what code is Practice Ignition built on?
Guy: Wow! I can do HTML. I’m a bit of a hacker when it comes to that. So, Interactive Accounting website is pretty much the same since 2012 or 2013, and I built a lot of that but it’s HTML. If you understand Google and inspect element, it’s pretty much the code from those pages and then tweak it to make it your own if you like.
Heather: So, Practice Ignition is built on HTML?
Guy: No, that is the website for the Interactive Accounting. Practice Ignition, just to be clear, is built in Ruby on Rails as a backend and we have java script from front end so the way it looks and feels, with Amazon in there as well. Essentially, to give you an idea, the platform is sort of built on Ruby on Rails – twitter, realestate.com. There is a huge number of large ecosystems in place that are built on Ruby on Rails. So, we share a very good backend architecture and a very modern one that scales really well. We are really thrilled about that. Yes, I guess that’s what we’re built on.
Heather: Fantastic! Thank you for that. It’s always interesting doing all the different codes that they’re built on.
So, how does an old school accounting practice move to the clouds? How do they adjust their business for such a major upheaval? If we are talking to them in 2015, you’re going out, there is a 40-year old running his accounting practice who perhaps is a little old school where everything is desktop-based. Is it easy for him to just start again? Is there a roll-out package that he needs to do? What would you suggest to him?
Guy: If it was me and I was working at the firm I was at before Interactive Accounting, they did something interesting and I haven’t gone all out with it. But I think the notion is right and that is to split out and kind of build it around startup. So, take money off the balance sheet and assign it to a new entity or a new sub-branch within the firm. Find someone in the firm who is really keen on the cloud and also has the appetite for growing something and having a piece of it. Give them one other person or budget to spend on things like marketing and all those sorts of things and literally start offering whatever your firm has even in the simplest instance- Accounting firm A digital.
You should be running two systems and you should have two databases. But you’re also essentially creating two brands. This has been done really well by the guys over in Portland. They’ve got a firm called Delap CPAs which is named after the founder. Then, they’ve got a Revmov which is their cloud base. You looked at the websites and they’re two completely different scenarios. Even bigger firms in Australia are looking at this. If we can get our clients that are simple in terms of business structure into the cloud, the efficiencies are there. You have the option to potentially charge them a decent amount, but you get better information faster.
By doing that, you’re offering it to the people who you think have the appetite for it. You should announce it to the rest of your clients that its there. But you can do this. You get all of your clients running more efficiently in that cloud and you’re continually to move people over to it and get that cost of compliance down. But you basically upsell it on their ability to spend the same amount with your firm and have the value added from the original part of the firm, which should be all about value-based. So, it should be the senior guys who know everything about these clients and starting to get more involved in heavy lifting of the value ads. Where are we going? What are you planning for the business? That sort of thing.
If it was me and I was in that position, I would do just that. I can tell you that a lot of the big four are doing that right now. But obviously they slower to move. It’s very hard to do it cost competitively. But I think the big takeaway there is there is probably somebody in those firms that would potentially be the older generation of accountants. I don’t mean disrespect there. The older generation kind of did it. They moved from paper through to calbolt through to desktop and through to private cloud. They don’t want to do another change and I can understand that.
There is probably someone in their late 20s and early 30s who is completely capable of essentially running and building a little client base. They’re probably a manager already. Try to find them. Pair them up with a junior bookkeeper. Give them a mandate to try and make it successful and break even in the next two years. And basically let them go hell for leather because you’re holding them accountable but don’t put the reigns on them. As they become more successful, you start marketing it to your existing client base. Some large firms have approached Interactive looking to just get their compliance for their clients and pushed it down into us. But the value stays with them. We can’t figure out how to not charge a company a year. You look like you can probably do it for 10 and probably make decent profit on it.
And that is the problem that you’ve got in existing firm structures. If you try to attach the sunk costs or the high partner pays and charge rates of the older generation with it, it’s not going to work. It can but only if you committed to the fact that you’re going to make losses because you need to get everything started. If we’re talking of the principles here, when you started your firm, you only pay yourself minimum wage essentially. It doesn’t matter who you are. Or, you bought a client base. So, that whole motion needs to be treated and like that again. You need someone who got the stamina and just the passion to go with it and also the ability to deliver, someone that is agile, nimble and that can move as required.
Heather: I totally love that concept and it hadn’t sort of crossed my mind that that would be something to do but I totally love that. I also think, if you’re running that firm, it actually keeps the employees engage with you rather than him going off and starting a competitor firm which you just see all the time. I train so and so and I was just about to rely on her and go on my holiday, and bang, she has gone off and started her own firm. Starting your own business is hard. It’s not necessarily the easiest thing to do, but it actually gives them the opportunity to start to use their brain to achieve something for themselves but have someone in the background supporting them through that process.
Guy: Yes, exactly. If we take the example of Interactive, sure, it’s a cloud-based firm. But the only reason it grew really ridiculously fast is because I allowed and rightfully so, I basically handpicked those people we were just talking about from other firms who are knew. I didn’t their principles, but I’ve known them throughout my studies. I was like, you’re great with clients and you’re a great CFO. Do you want to come onboard? I will pay you the same. You’ll be my partner for the next 18 months. You’re the best tax person I’ve ever met. Do you want to come onboard? You’ll be my partner in 18 months as what you’re paid now. That’s a real possibility for them to pivot like that and do the cloud thing. Have a stake in the company that’s going really fast and not have to wait for 15 years to be a partner.
I remember the first time I worked there. I started there at 18 and I was talking about my past partnership. What do you see as the last cycle? They were talking about 17 years of service. Ironically, in probably about three years’ time, Interactive will be bigger than their firm in terms of revenue. You want to be inspired. And what better way to get your next generation coming through and to achieve that higher valuation, going back to back to our early discussion around getting key people and getting people to replace you. Then, this is a real possibility. Let’s start you on something small, let’s call it one per cent, and let’s get you in this cloud thing and if that’s successful, let’s talk about you buying in more or having stake or perhaps a sub-entity if we roll it out into something separate.
You then basically give them the ability and some incentive there. There is trust. I know we’ve been talking about Gen Y being a negative thing. But accountants are still quite conservative breed. But if you give someone the ability to achieve something greater and learn more, they want to go at it. That is possible. Sure, they’re accountants. They will have the economics stance of where they are at, all the time. Would they be better off going into something by themselves? Maybe unless you make it viable or you provide a path. They want to be an equity partner too. You should provide them a path into that and ownership. Then, they can help improve your firm multiplier which is crazy not to consider.
Heather: That’s brilliant. For people listening in, you can probably tackle it from either end. If you’re the older person there, you may find the young gun. If you’re the young gun, go out and suggest it to the older person and see if that is something you can propose to them and go with it.
Guy: Definitely. Look for Interactive Accounting. They will look to join firms like mine or start their own if there isn’t a future for them.
Heather: Definitely. Are you looking for new staff members?
Guy: Always.
Heather: You’re based in Sydney and Melbourne. Are you looking for staff members based outside Sydney and Melbourne?
Guy: There is the potential for that, but they will have to put on a pretty strong case. The moment we’re trying to bolster and really have those two teams, I think there are roughly eight people in each office at the moment. We’re longer-term looking. I don’t think Interactive has the goal of just being in Australia. So, we’re going inch wide mile deep into high growth, digital businesses, startups and agencies. Our goal is to try and help globally. So, take that with a grain of salt. I don’t know the timeline, but there are people who are interested, by all means reach out.
Heather: Excellent. Please do reach out. I will leave a link to Guy’s website in the show notes. However, he is pretty easy to find on Twitter, @guypearson.
Guy: By all means, reach out, get in touch.
Heather: I do know that, when I was preparing for this interview, lots of people contacted me and said Guy had a Skype chat with me and I learnt so much from it. Obviously, you’re out there talking with people all the time.
Guy: I don’t try to teach. I literally share stories and opinions. Whether they’re useful or not is completely up to the listener. But I’m quite blunt as I came across particularly that last statement about what to do with your existing firm.
Heather: No, you didn’t come across as blunt at all. That was sharing an opinion. That was fine. So, Guy, you’ve had the opportunity to spend a lot of time abroad. I believe you’re residing in Silicon Valley. Is that correct?
Guy: Right now, I’m back. But I was in San Francisco for the last nine months up until June.
Heather: Okay. So, you’re in San Francisco for nine months. You appeared to have been on some of the road shows over in England and Canada. Would that be right?
Guy: Yes. We did XeroCon in the UK and we got some of the teams over in London for the Practice Ignition. We set one in Canada as well, and I think we’re hosting an event with Xero in Vancouver in three to four weeks’ time.
Heather: Fantastic! So, what’s your perception of the state of the global market and the adoption of cloud?
Guy: Are we talking from a small business point of view or from an accounting firm point of view?
Heather: You can choose.
Guy: We can talk about both. In Australia, we probably have something around 10% small business adoption of cloud accounting, which is great. The interesting thing is that, in terms of an accounting firm being online, and I don’t mean having a website or using Google apps. It’s something like a complete backup. We’re probably talking about the 1% mark for accountants. From growth change accountants. They might have no servers, no storage, a private cloud for an old tax programme, but everything connected- 1-2%.
As I change accountants, Inspire CA in Brisbane, growth wise in Interactive crew. Globally, I would say it’s a fraction of 1% in the UK where some accounting firms are completely automated and probably around 2-3% in terms of small businesses there. In Canada, it’s 1% of small businesses in a small fraction of firms. It’s probably the same in South Africa. But the interesting things are that the Canadians and the South African mark is really where a lot of ecommerce born in South Africa and there are also some born in Canada. These banking systems are both ghastly. With the like of strike and payment providers rolling out and being online globally so they can accept payment easily, you’ve got this adoption.
Let’s think about where the next flow is going to go to. You got this notion of we want to move the accounting online. I think you see countries like Singapore and Hong Kong where there are hubs for distribution and purchasing. You see South Africa and Canada all start moving online for the small business a lot of faster. Hopefully, they will be able spur on the accountants. The big unknown there is obviously the USA. Ironically, I’ve had the probably the oldest cloud accounting. The oldest cloud accounting product is actually [KBO] that was released in 2001 or something like that. It looked ghastly and I wouldn’t use it if someone paid me too.
With that, you already got a decent chunk. But it’s still only about 2-3% online in the US in terms of small business owners. The accounting firm is just a fraction of 1%. Andy Lark pulled out a slide at a Xero presentation about the Adoption of Curb Technology for your Firm. There is definitely a need to do it in terms of protecting margins for your firm. If you don’t do it, and take the proactive step, the irony will be that your clients are going to kick your ass because they want an online experience. Who wants to call someone and wait two days to get access to something? If you think of that, you have your own personal desire to access things online with one click or two. How long does it before that comes to the accounting industry? That was the whole driver of the Practice Ignition. But the whole notion is that the Practice Ignition is coming. It might be two years or five years in Australia and ten years in the US and seven in the UK and the rest of the world depending on various factors. It’s coming.
Dairy farmers are probably the hardest people to put on tech, yet, ironically, they have a really high consumption of technology because they need to know everything about their livestock, where they are and what their productions like and all those sorts of things. So, you’re starting to see all those industries. They have adopted the technology. Actually, they are embracing it because they need to protect their margins and understand their business better.
Heather: Absolutely. The dairy industry I think is figured. It’s just amazing that they’re actually adopting it and they’re just completely onboard with it even though they’re at isolated farms.
Guy: Yes. Let me tell you, their internet bill is nothing to sneeze about.
Heather: No, but they’re completely onboard with it.
Guy: Yes. If we take that in perspective and maybe look at law as one of the other ones, they are all looking to put in practise managements systems because they are sick of losing documents and trying to find things. And they want access to things quickly because let’s face it that people’s attention and patience is not getting more plentiful. They have six seconds on a webpage. It’s probably all you have. It doesn’t matter if you’re Gen Y or baby boomer. But you don’t like waiting for anything. And that’s just going to get more and more prominent in terms of delivery of service and delivery of information to the whole market and they will flip. I mean I grew an accounting firm with a notion that people wanted the new efficient thing that costs less and gives them better information faster. Even my mother says this is risky. Sure, but it has changed.
I’m not going to go into Government, coal and energy but I love talking about that as well, in terms of why are we not the world leaders in solar and battery storage, is beyond me as we have the biggest desert in the middle with nothing in it.
Heather: Absolutely. I completely agree on that one. Guy, your accounting practice has won numerous awards from Xero, and your solution Practice Ignition has received investment from one of the main investors in Xero. It’s fair to say that you’ve had a long term relationship with Xero. How do you navigate building relationships with other accounting software solutions?
Guy: Carefully. That’s probably a great answer. The irony I see, is that Xero was the best solution. I built the accounting firm around it. There is no chance that they’ve moved clients in Interactive Accounting. They also need to be pragmatic and understand that those are great for a large number of businesses. There are certain areas where it’s not going to be the strongest in the market. There are also people that have ties and alliances to other software solutions around the world.
Practice Ignition that we’re talking about is its whole goal is to build the business itself. So, Xero has been a great partner and we’re helping us get exposure through things like XeroCon and the road shows. Ultimately, we need to make sure that we do what’s best for us. As you said, we take on an investment. I’m not sure that I fully understood what adventure capital investment meant back in the day. I thought it meant that you have money to throw at parties. We’re talking to accountants here. So, ultimately what an adventure capitalist does, it allows you to continue building a base for your business at some cost. Mostly our costs could be capitalized. We need to fund those until the revenue catches up.
So, taking on an investment essentially means that we need to get a really fast growth rate. But we got such a little base that we’re coming with some significant costs and technology and even hiring and training and marketing education in getting our systems right. We need to find that gap. We’re talking about running our business. You want to make sure you have the best success. Most accounting firms to date offer more than one solution for their clients, in which case, we need to be able to partner up with more than one back office solution provider because that invoicing connection is one thing and process payments. But where we add value when we integrate is mostly on the practice management side. So, every man and their dog, when it comes to large accounting firms, has a large accounting software provider that has a ledger and is building practice management online.
We need to be able to integrate with everybody so we can serve the firm and help run a more efficient accounting firm and really help the industry. So, it’s not anything against Xero. It’s more where our focus is on industry-wide, not on a particular software vendor. We just want to help get the messages enable the software vendor messages and Xero case point about the modern practice. I think they’re renaming to something else, but the whole notion of the firm that can progress into the future and be online would be an essential part of that.
Another company has a notion about the firm of the future. We want to be a part of that conversation as well. I think what you’re seeing more in the future is the practice manager systems actually starts processing data from multiple different ledgers. So, it won’t be a battle for a back office although it may be a part of it; it will be a battle for the ledger for the client. The end client is the business owner. We’re trying to get people’s ear about which ledger is best for which client. We’re having a different niche and different integrations and verticals and solutions to suit different people. So, we treat it carefully. We don’t forget where we came from. But at the same point, we need to make sure that we grow our business that got the industry and the client experience and that at heart and not just a piece of software and a company behind it.
Heather: Following on from that, the MD from Interactive Accounting, Lisa Callaghan, has recently written an article on LinkedIn highlighting capacity planning and staff allocation are both unnecessary pain-points in today’s practices. And she estimates it’s taking her $30,000 a year to achieve. What are your thoughts on that issue?
Guy: I think she probably underestimated the cost associated with it given a few factors and what she should be doing instead of doing that. But it’s true. At the present time, practice management solutions have the notion of here is the schedule, the time, the availability and when the work can be done and the ability to move it and do that easily. It’s kind of a great surprise to myself particularly because this isn’t a new issue. We’ve been hampering on about his with the providers for the last five years. I really think that it should have been quashed three or four years ago. There was a great plug-in for WorkFlow Max built in, in Auckland. I forgot what it’s called now. I don’t know what happened there, but they didn’t do the market together which is a real shame.
The second part is there is this company based in New Zealand- Rightway, it’s an accounting firm. They built a technology product which is all about the capacity planning as well. Once again, it plugs into XPM I don’t know whether that’s something they keep internal or that’s something that has been on the market. But the whole notion is that there is definitely a massive gaping hole there. I am very keen to integrate with anyone who builds it and hopefully it just sits within our practice management solution. So, we’re going to have someone signing up a new client. You get a notification as principle, inside PI and says who would you like to schedule the work to or do you still want to schedule the work to the staff you have allocated when you created the engagement. If not, then who, schedule it in. Obviously, it’s an estimate. It needs to be fairly flexible in the back end office side of things.
There are certain people who don’t think it’s an issue which is kind of funny. That’s understandable. So, Interactive is trying to find the most efficient way to run firm. We have to know all the hours estimated for doing every bit of work to understand who has the capacity and who doesn’t. But then you need to be able to see that when you get a lead from them. So, clients are looking to come onboard or people start new entities so they can deal with things quickly. That’s really hard to do into those online practice and management systems. So, what is the answer? I have no idea.
If it was me and I was running a larger business but I have a few hundred million in the bank, I’ll be looking at risks. Lisa and I didn’t talk about capacity planning. Whatever capacity there is, we need to get this done. And that’s basically how we run the firm based on the P&L. When you get bigger, when you’re talking about having teams and people are coming for higher management, it really needs to start running efficiently. I mean the largest segment market is still probably five people and below. These guys probably don’t need practice management. To win the battle in terms of winning the end business users the volume probably sits in the 5 to the top end of the town, in terms of the number. For example, Prolink files the most tax returns in Australia. With no capacity planning, there is no way they billing to an online practice management solutions because that would break their business.
Heather: Absolutely. Thank you for sharing your thoughts on that. I have a few more questions, but we’ve gone so much over time. I think that our listeners will absolutely love what you’ve actually had to share to us today. I really appreciate you taking the time and feel free to come back and share with us more stuff along the way. Let me finish off with one fun question: whenever we see you at a road show, you’re typically wearing an astronaut outfit, what planet would you like to visit, Guy?
Guy: I would go for the biggest, Jupiter. I think it would even be more fun if it’s Pluto just because no one ever talks about or Saturn and look at the rings. I have no idea. I don’t even think it’s safe for men to even travel there but it probably adds to its appeal.
Heather: Awesome. Saturn Man. Thank you so much for your time, Guy. We really appreciate it. Listeners, I will leave notes in the show notes on how to get in touch with Guy if you haven’t worked it out already. Thank you very much.
Guy: Thanks, Heather. Thanks for having me. I hope to see you all soon wearing a space suit or otherwise. Thank you.