“I’d like to think of myself as strong opinions loosely held, right? So, I used to be the guy that was strong opinions, strongly held, but as I’ve gotten older I’ve become more wise and I’m happy to be challenged on my thinking. And so, what I try to do with my blogs is challenge other people in their thinking, and I’m open to being torn down, so to speak, is a weird word people use about my blogs a fair bit, but I want to do that to challenge people and the status quo, to be honest. I think there is a real lack of independent voice out there. And this gets validated to me all the time is a lot of the content is produced by the software vendors with their own personal outcomes in mind. There’s very few of us who actually like yourself Heather are independent, who are putting out their thoughts based on experience, and based on not necessarily being with a specific commercial bent in mind, if that makes sense.”

“I consider myself often an early adopter of technologies, but the one thing I’ve learned is that the best product does not always win.”

– Matt Paff, Value Adders.


Matt Paff of Value Adders and Trent McLaren of DiviPay joined me today, and we reflected on 2021 and discussed predictions about the 2022 Business Technology landscape.

Areas explored include:

  • Reflecting on Matt Paff’s 2021 predictions: acquisitions, payroll tech, bank feeds and automation.
  • Matt Paff’s 2022 BizTech Predictions 
  • Accounting firms that can adapt to the workforce of the future are going to be able to find staff.
  • Closing the gap in Intuit and Xero’s offerings: Capturing Operational Data
  • Using cheap debt to smash together a software company
  • The next big purchase: POS, Job/Practice Management software
  • The big boys just keep getting bigger and bigger. Will antitrust laws need to break them up?
  • Consolidation due to app fatigue
  • Massive opportunities for niche solutions: The Riches are in the Niches
  • The criminal industry’s already adopted Bitcoin so it ain’t going anywhere.

I actively use and partner with DiviPay, where Trent works, and you can read about how I work with Apps at EndorsementDisclosure.com.

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Don’t miss the details at the end of this blog to learn more about Earmark CPE. Now, let’s dive into this episode! 🎧


Scroll down for a full transcript

Can you briefly introduce yourself, who are you, where are you from, what should our audience know about you?

Matt:                Well, it generally depends on the age of the people that I’m talking to as to what my background is because if I mention something like Attache to people, the people under the age of 40 don’t know what I’m talking about. The people over the age of 40 go, “Oh, I remember that.” So, I started as a graduate in an accounting software company called Attache around the time the Sydney Olympics finished, so that’s 22 years ago. And ever since I’ve been in and around the business software space in Australia, and around the world. I’ve basically had every imaginable role. I’m not an accountant, so I will put that out upfront, but my life has been in and around accounting software, particularly. So, I know as much about general ledgers and that side of things as the average person, probably more. And yeah, so my background has been I’ve pretty much had every role in the industry from technical support to CEO of Attache at one point. I’ve sat in boardrooms. I’ve done various things in the industry over a long period of time.

Matt:                Basically, for the last seven years since I left Attache I’ve been running a consulting firm called Value Adders, which is focused in on providing value wherever we can be based on the 22 years of experience in the industry that I have. So, we consult to end customers on what particularly mid-market software. So, generally, ERP or that intersection of ERP and Xero plus add-ons, what software people should be using. We also consult to private equity firms and software vendors on what’s happening in the market and those sort of things. So, general people know me from my blogs. I haven’t written as much in the last couple of years because life’s been busy with three young kids and lockdowns and these sorts of things. But yeah, typically in and around the business technology space. I also have fingers in a few pies. I have a couple of software companies, but for this audience, the prime thing is my Value Adders consulting firm.

Heather:           Absolutely. Thank you for sharing that with us.

Do you perceive Value Adders as a cloud integrator?

Matt:                No, no. We tend to do advisory. It’s funny. I actually think this term called cloud integrator, which Xero invented is just repositioning what I was back in the day, which is a software consultant. So I was never an accountant. I was never a bookkeeper. I used to run an accounting software advisory firm implementing a product called Attache. I basically did that in the mid nineties, and I guess that is what the modern day cloud integrator is perceived. In the ERP space, they call them VARs these days, value added resellers, but I would consider myself a software consultant, but we typically don’t do the implementation or the actual technical work. What we do is we create strategic advisory around what the right path is on software. So, our average typical client, and end-user is someone who’s been using Xero plus DEAR. They’re frustrated with the transaction limits in Xero, and they’re looking at NetSuite or Microsoft Dynamics or MOYB Advanced or Sage Intacct or yada, yada, yada. And their heads are spinning because all those products can do the job. They just don’t know which one to choose, and how to justify the significant investment increase to go to that next step. So, we are a software advisory firm, not a cloud integrator.

Heather:           Thank you. Thank you for that clarification.

Trent, what do people need to know about you?

Trent:               So, I’m Trent and I work at a company called DiviPay, but I’ve been in and around accounting not quite as long as Matt, but I think nine years still feels like a long time, but then I meet accountants that have been accounting for 20 or 30 years, and I’m like, “Well, actually, I haven’t been around that long.” But I was around long enough to read Matt’s rise to fame in his famous tear down, the review that no one else will write. I used to live for those things. I’ve said to Matt openly that I would hang out. Even when he would’ve said, “It’s coming on Monday.” Calendar reminder, Paff’s coming out, get on it. Every Slack channel I was in I was like, “Have you read this, have you read this? It’s amazing.” It was good. So yeah, I’m big fanboy and loud and proud about it. So, yeah, Matt, good to be here with you, mate.

Matt:                Oh, sure. Thanks, Trent.

Heather:           You are definitely, and I would follow on with that. You’re definitely a legend in the industry. The takedowns, the knowledge that you have, and the write ups that you have that I know I read them multiple times to try and absorb because there’s so much information packed in them. So, hopefully we can share some of that today.

Trent:               It’s like, if I don’t need to digest the annual reports, I’m like, “I’ll just wait for Matt’s review because he’s done all the hard work, and I’ve got Matt’s takeaways and that’s probably better than what I would’ve found out.”

Matt:                Can I just say one thing is I’d like to think of myself as strong opinions loosely held, right? So, I used to be the guy that was strong opinions, strongly held, but as I’ve gotten older I’ve become more wise and I’m happy to be challenged on my thinking. And so, what I try to do with my blogs is challenge other people in their thinking, and I’m open to being torn down, so to speak, is a weird word people use about my blogs a fair bit, but I want to do that to challenge people and the status quo, to be honest. I think there is a real lack of independent voice out there. And this gets validated to me all the time is a lot of the content is produced by the software vendors with their own personal outcomes in mind. There’s very few of us who actually like yourself Heather are independent, who are putting out their thoughts based on experience, and based on not necessarily being with a specific commercial bent in mind, if that makes sense.

Heather:           Yeah, no, I absolutely agree with you, and I will disclose that I do partner with DiviPay, but they don’t have any say over what I say, but I do trying to balance writing and sharing your views, and with work and income is definitely a challenge. And you’ve done that very well. And I’ve done that via a different route, but yes, absolutely. (Note: Here is a link to my EndorsementDisclosure.com about the way I strategically partner with Accounting Apps)

So, before we jump into it, what’s been happening in your world. It’s end of January.

What’s been happening in your world, guys?

Trent:               I’ve been hiring a lot of people. I mean, I’ve talked about this a lot in your show, especially about just to keep everyone in the loop. So, we raised 20 million in December, and I’ve been on a recruitment cycle ever since that. So, I feel like I’ve been a full-time recruiter doing the… It’s a different… You’re a salesman, really. You’re selling people the DiviPay dream, come and work for us. It’s going to be the best time of your life, I promise, which is actually true. I do believe that, but so that’s been awesome. We’ve all come off a good break. There’s a lot of new team members coming into our business, and just getting involved often in other bits and pieces of projects in and around the accounting space. Some I can’t talk about too much yet, but yeah, just exciting times. I’m optimistic for the year. I’m very excited for 2022. I think I said that at started 2020 as well, but I mean at this time.

Heather:           Awesome. And you, Matt.

Matt:                Well, I got COVID in the middle of December. Got it out of the way before Christmas, whole family got it. And then I’ve been on a month holiday. So, this is my first week back. I always say to people who don’t understand Australia, between Melbourne Cup and Australia Day not much happens in Australia, right? For the audience in Australia will understand that. The audience outside Australia, Melbourne Cup happens in the first Tuesday in November. That’s when all Christmas parties start and people start to wind down for the year, but I’m sort of wind out. I’ve had a lot of consulting, a lot of companies basically looking at ERP solutions in particular. So I’m doing a lot around the NetSuite, and the Microsoft Dynamics, and MYOB Advanced type of space.

Matt:                I also got a software company called vSure. vSure is work rights validation typically used by larger organisations. So, our clients include the likes of Target and Kmart and H&M, and these sort of organisations who are doing a large amount of recruitment. One of the processes that you have to do as an employer is you need to check the legal right to work of everyone. We’ve built some software that automates that process. And whilst the borders have been closed, and two years ago, I was a bit worried about the future of the business. The business is just going from strength to strength to strength, and certainly helped by our Prime Minister and our Premiers at the moment going open the flood gates to immigration. We need more backpackers. We need more students. We can’t get enough workers.

Accounting firms that can adapt to the workforce of the future are going to be able to find staff.

Matt:                As Trent just alluded to, I think everybody is struggling on the staffing front at the moment, particularly the accounting industry. Just everyone I talk to is like, “Just can’t get enough quality staff.” And that applies across every industry. I’ve just been to a wholesale client. They can’t get people to work in their warehouse. Hospitality industry, particularly in Sydney, 50 to 60% of Sydney’s workforce in the hospitality space are generally backpackers or student visa holders, and there’s just a lack of them in the country at the moment.

Matt:                So, yeah, I think as we start the year 2022, Heather, one of the things that’s definitely front and centre is recruitment, and where are we getting the staff from? I think it’s really driving, and Atlassian’s an interesting piece. I don’t mean to jump too far ahead, but Atlassian’s just announced that they’ll employ anyone from anywhere in Australia. You work from home, wherever you are, just let’s get on a Zoom interview. Let’s see if you can work for us. We want to recruit people. We don’t care if you work in our office or not. I think that’s the modern way, and I know DiviPay take that approach. It’s those accounting firms that can adapt to that, that are going to be able to find staff.

Trent:               I was just in a coffee meeting this morning chatting with the team at Xero, and they also have adopted a similar approach now. So, their example of their Brisbane office four or five years ago had six employees. But technically now they’ve got 60. Their office space only carries 20, but since the pandemic and COVID and everything, that’s just opened up where they’re hiring everyone, engineers, comms, marketing. It’s a very different space. Interestingly looking at the UK and what they’re doing at the moment, they just back flipped I think a week ago. I think it was Boris Johnson or someone saying, “We want everyone to go back to work, no more mask restrictions.” It’s all abolished, and they want to go back to pre-COVID conditions. That’s what they… Again, I didn’t watch it. Just what I retake from the LinkedIn post and everything else that I saw, but it’s interesting times to see how this all adopts.

Trent:               I think it’s here to stay. I don’t know that you can take back the experience everyone’s had with hybrid work and everything else. Just this is what triggers the great resignation piece is trying to take that new found freedom away from all these employees and people thinking, “Well, this is actually what I really care about now is more time at home with family, with flexibility.” And they want to keep doing that. It’s going to be very hard to wrench that off people, I think, myself included.

Matt:                I’m a little bit the opposite. I’ve got three young kids at home and I can’t wait to get back to an office. We gave up our office two years ago at the start of the pandemic, and I’ve literally spent this week, my first week back looking for an office because I’m sorry, it’s been very, very difficult as a parent and all the parents out there will agree with me trying to work from home. I have a four year old who just want to hang out with dad all day, if he’s at home, and it’s just very difficult to be taking meetings. And I think most people have become accepting of children interrupting meetings and this sort of stuff these days, but there’s still the odd call I’ve been on where there’s people rolling their eyes and/or can’t you just get your wife to look after your kid or something like that. There are still people who are not accepting of a business meeting being interrupted by kids coming and sitting on your lap. So, it’s been an awkward experience I’ve got to say the last two years for me.

Trent:               I fully appreciate that obviously I’m coming quite like I have no kids. I live the Gold Coast dream, right? So, no kids, and I’m not interrupted by anything other than my wife maybe bringing me a snack every now and then, which is amazing, and I love her for that, but I think my point comes… So, I agree with everything you just said there, Matt. I think it’s a choice though. I think the employee, if they can do their best work and they’re still producing the quality work from home and maybe they are in my space of life, right? No kids, and they’re comfortable in that space. I think for employers that are wanting to try and bring all of their team back to the office, I’m like, “There better be a good reason other than I just want you in the office Monday to Friday for eight hours a day.”

Matt:                100%, and look, don’t get me wrong. I think one of the things that also is coming out of this is flexible work hours. Even with the kids now back at school, they’re home at three o’clock. So maybe my work hours becomes nine till three and then 9:00 PM till 11:00 PM after the kids are going to bed. And that becomes a part of acceptance. So, I’ve got Michelle who works for me who’s got two young kids, and a lot of the work that she’s doing is at night after her kids are gone to bed, and that’s awesome. It’s something we used to not encourage working outside of work hours. But if the give is to be able to look after the kids during the day then that’s awesome. You know what I mean? And this is the idea. It’s not just work from home. It is flexible work, and I think that’s the absolute thing that has been accelerated in the world. It’s something that’s been talked about for many years, but I think the one real positive coming out of the pandemic is just the awareness and the capability of that and the technology that supports it.

Trent:               I’m a big fan as long as the people are getting their best work done. I had a big chat with my team last week about this. I said, “I don’t mind where you work from, but if you’re going to try and work from a cafe or the beach or whatever it may be, make sure that your KPIs are still getting hit, right?” You’re still there to do the job that you’re employed to do. I don’t care where you do it, but I expect it to be the best it can possibly be. It’s that caveat. It’s like, do whatever you want. These are the rules. These are the conditions. These are the outputs. As long as you’re hitting your outputs, the inputs I care a lot less about.

Heather:           Yeah. And I think people are coming to terms with that, and this image of someone sitting in a chair in the water at the beach with a laptop is not actually doable.

Trent:               I can’t do it. I can’t do my best work like that.

Matt Paff reflecting on Matt Paffs 2021 predictions: acquisitions, payroll tech, bank feeds and automation.

Heather:           It’s not what we meant by flexible work. No, absolutely. So, I’m keen, Matt, every year you write a predictions of the following year and you release it around January, February time. So I’m keen to reflect on what you thought about 2021 and your predictions that you actually threw out there into the universe, which were very much around acquisitions from the big companies, and well was the big companies. And then how the payroll tech world was going to play out. The predictions are very long here.

Matt:                Yeah. Well, look, one thing that I hold true to heart is that I do make predictions every year, but I also do review my predictions. So, before I make the next year’s predictions, I’ll see how it went last year. And to be honest, it’s a hard game. There’s a famous quote. I think it’s Bill Gates that gets attributed with it is people… What is it? People expect change in the short term happens quicker, but in the long term happens slower. It’s not the exact quote, but the idea is it’s really hard to predict in the short term. What I’ve found a lot over the last five years of doing this blog is I may be right, but I’m just out by a year or two.

“Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years.” Bill Gates

How Progress Compounds and Why It Matters: Gates’ Law

Matt:                And so, when I went to sit down last year to write this blog and I was very busy at the start of last year, so I was a bit late in getting it out. All I saw was that money was cheap. A few of the smaller players were getting a bit exhausted after years of beating a path, and acquisitions seemed to be the logical thing that everyone was going to be doing. Look, at that top level, I think I’ve been absolutely proven correct. Last year was a year of acquisitions. I think you’ve got a list of them there, Heather, you mentioned that you sort of collated.

Heather:           Absolutely. Yeah. There’s so many of them.

Matt:                Yeah. And look, in the blog, I specifically talked about the bigger companies in the Australian market. Those big ones in the Australian market tend to be Xero, which everyone knows. Intuit, the interesting thing about Intuit, and something I would like you to consider is the share price of Xero over the last 12 months is off by 27.85% as of today. The share price of Intuit over the last 12 months is up by 39.81%. Now, the difference is the size of the acquisitions being made. Intuit acquired some fairly big assets this year, and none smaller or bigger than MailChimp. MailChimp as a company is bigger than Xero is as a company for market cap. So, these are the size of the sort of acquisitions that they made.

Matt:                And so, where I was looking at the acquisitions last year, and I mentioned it in the blog was under Goodarzi, who’s the CEO of Intuit. He’s really keen on acquisitions, and he’s stated that as a means of making Intuit go faster. Where I’ve seen Xero, Xero raised money a number of years ago to make acquisitions. But if I’m being frank, I’ve been a little bit disappointed in the acquisitions they’ve made. I’ve questioned a few of them. The big acquisition over the last year was Planday, which is a workforce management solution, and it’s really funny because globally a lot of companies have come to Australia to acquire rostering time and attendance systems. Australia’s been one of the leaders in the rostering time and attendance space. Brands like Deputy and Tyro (said Tyro but may have meant Tanda), and before that Roster Live and WorkBuddy way back when. These are products that global companies have come to the Australian market and going, “Well, these guys are leading the space.”

Matt:                It was really funny to see Xero go to Europe and buy a workforce management product when generally the opposite happens. And also the likes of Tanda are under their nose in the Australian market as a privately owned company. But I guess their strategy there was to get a foothold into Europe, and that sort of tells you the thinking behind. I guess, Xero’s acquisition strategy at the moment may be as much geographical positioning as it is around technology wise. Whereas, when you look at Intuit, Goodarzi talks about this, that he looked at, well, what do we need to do to power prosperity in the world? And he’s looking at the big plays. He’s not looking at buying a small little system here. He’s spending 12 billion US dollars on buying MailChimp. And so, it’s very interesting how that’s played out.

Matt:                And then I guess the other player I talked about is The Access Group. The Access Group is new to the Australian market. There are a UK, basically a private equity firm dressed up as a software company mirroring what I would’ve said Sage were doing 20 years ago. Interestingly, last year they bought the assets of Sage in Australia, and Southeast Asia. They are a significant player in this space. They’re here, they’ve bought Attache, they’ve bought Unleashed. They’ve bought the assets of Sage, including HandiSoft, and MicrOpay, and WageEasy, these sort of products. They’re a significant player in this market, and their entire growth strategy is through acquisition.

Matt:                Then there’s still MYOB. MYOB’s owned by a private equity firm. MYOB have been making acquisitions and of all the predictions I made last year, my predictions on MYOB were almost 100% accurate. I talked about where their growth assets were needed. They have acquired the rights to the guys at GreatSoft. They’ve acquired 75% of a rostering time and attendance system called Roubler. Their acquisition path has been quite clear, and I think there’s still a few more acquisitions that KKR will make with MYOB.

Matt:                But yeah, that was my view of last year. Yes, there’s been lots of acquisitions by those big four, particularly in the Australian market. I think the HR tech space has been interesting. End of last year, Employment Hero has acquired KeyPay. Those have been following my blog for the last years. I’ve been predicting KeyPay to be bought by everyone. The one I didn’t predict was Employment Hero, even though there’s been some common owner issue it there and stuff. I just didn’t think Employment Hero would be big enough to buy KeyPay, but that’s what’s basically happened. There’s also been further payroll acquisitions made by the Access Group. They’ve gone on to buy a Perth based payroll system called Definitive, which I think is going be a good product. And yeah, anyway, that’s last year, Heather.

Trent:               That’s 2021. Can’t wait until we start talking about 2022.

Heather:           And there was one more thing to touch on for last year.

Reflecting on 2021 predictions for bank feeds and bank automation

Matt:                Yeah. Well, the key thing was bank feeds has been the realm of small business software for some time. And it’s not Xero who brought bank feeds to the market, everyone. It was the guys at BankLink in New Zealand. So, anyone who’s been around the industry long enough knows that BankLink started bank feeds, and it was a great invention. And most accountants across Australia, and New Zealand were getting BankLink discs sent to them 20 years ago. But bank feeds has been the realm of small business. I’ve been predicting for some time and really scratching my head why ERP just hasn’t gotten on to bank feeds. They’ve been so, so slow to do it.

Matt:                NetSuite has launched bank feeds in the last 12 months. It’s still early days. It’s still not what bank feeds are in Xero or MYOB or QuickBooks. There’s a limited amount of transactions that you can create from the bank statement. It’s more about matching than actually transaction creation, but they’re getting there. MOYB Advanced has bank feeds now. Sage Intacct has some very basic bank feeds. Again, you can’t create transactions from the bank feeds, but the point is they have been to this point converting clients from legacy ERP systems and legacy desktop accounting software like MYOB account, right?

Matt:                Now, they’re starting to convert people from Xero and people are going, “What do you mean you don’t have bank feeds? What do you mean I have to enter a customer payment? I haven’t entered a customer payment for five years because the bank feed does the customer payments for me.” And that has finally filtered up to these big US companies. The US companies are running the market and in the US bank feeds aren’t that as important for customer payments because everyone still pays my bloody check. People don’t get their heads around that. But yes, direct debit payments, FPOs is just not a big thing in the US compared to what it is in Australia. 99+% of B2B payments are bank account entries or credit card payments. Why do I want to enter that if the bank statement already has it?

Matt:                So, my prediction was that was coming, and it’s got there, but there’s been to be honest, NetSuite have had a pretty poor first crack at it. They’ve partnered with a company called Salt Edge. I think Salt Edge nowhere near Yodlee on their journey to HTML scraping. And then the reality is HTML scraping is an interim step that everyone went through before they got proper bank feeds. That said, this year or last year NetSuite have announced they’re moving not just the bank feeds, but to the full open banking stuff. So, I think you’re going to see a lot more advancement in this space, in the ERP space.

Trent:               Well, why is it taking so long, Matt? As you said, bank feeds have been around for a long time since BankLink and then maybe made more popular through Xero later on as well. Why? Is it just because there’s the sheer volume of transactions is too much for them to build around or?

Matt:                That’s an excuse, Trent. That’s an excuse.

Trent:               Yeah. That’s a dumb excuse.

Matt:                They’re US-centric and it’s not as big a deal in the US to enter a customer payment because you’re getting a check, right? Two, if I asked my customers what they want, they would’ve asked for faster horses is the famous quote from Henry Ford, and asking legacy ERP providers, what they want. They’re really going to say bank feeds because they haven’t been exposed to it. It’s only now that the likes of the Xero customers are going, “Well, we need 10,000 transactions a month. We can’t do that through Xero. We need to go to an ERP platform.” It’s now that those customers are actually asking for bank feeds that they’re starting to wake up to it because up until the last couple of years, the primary audience for the cloud based ERP systems hasn’t been upgrades from Xero and QuickBooks online. It has been legacy ERP systems to cloud ERP systems.

Matt:                And so, the customers haven’t been asking for it because they didn’t know it existed. You know what I mean? So, again, these ERP systems, the mentality is, “Oh, our customers use accrual accounting. Why would they want bank feeds?” Because a customer payment is made. But everyone enters checks in the US, so you don’t need customer payments in the US like you do in Australia. Well, wake up the rest of the world is now moving towards electronic payments. Even the US is electronic payments. It’s time to move on, and they are now. It’s astonished me, Trent. The guys in Australia who do very well is SISS Data Services. So, I don’t know if over the years you met, Grant Augustin, they used to do the bank feeds for QuickBooks Online, and they do it for Sage, and they do it.

Matt:                Now, Grant got into bank feeds long before anyone else to do his own Superfund stuff as an accountant. And then he worked out that he’s worked out a way to do bank feeds and then can monetise that. Now, Grant’s doing wonderful things there. He’s now doing the bank feeds for Microsoft Dynamics, for example. So rather than waiting for Microsoft to do it, he can now provide the bank feeds into the Dynamics product without Microsoft having to do it for Australia and for New Zealand and for whatever. So, the ERP space, it doesn’t have to now wait for these, the third parties are reacting, but also the bigger companies are waking up that they need it.

Heather:           Very interesting. Thank you.

How do you go about building up your predictions?

Matt:                A lot of it started out with what would I do? So, I used to be a CEO of a company, and I would I think when you look at the path forward, there’s a lot of homogenisation in what the companies are doing because it’s the logical path forward, if that makes sense. And so, five, six years ago, when I started writing the blog, I would write it from what would I do perspective, but I actually found that became relatively inaccurate because I would think they’d do it this year, but they’d do it three years down the tracker. My timing was off more often than not, not the actual prediction.

Matt:                And so, what I started to do is I start to look at the companies and who’s making the decisions and I still apply a little bit of what would I do, but I also know the personalities now. I get to see the personality of a Sasan Goodarzi who’s running into it, and I know the sort of thinking because he’s quite open with his thinking. To his credit, he’s the sort of guy that I’ve been able to interact with over the years. And so, he’s open with the strategies, and the guys at Xero to their credit are very much the same. If I need to speak to someone there, they’re very open to take my call, and I’ll talk through my thinking. They’ll give me some of theirs. And so, it’s more as much about getting to know the dynamic of the companies as well as then applying, “Well, where do I see the gaps?”

Closing the Gap: Capturing Operational Data

Matt:                So, when I’m looking at this year and my predictions for this year, I’m looking for where the gaps are in the company and the one gap I think that Intuit has right now, and I think Xero’s got the same gap is Point of Sale. If you’re looking at a product that has wide appeal in the market that they don’t currently have in their stables, both of them don’t have Point of Sale software. And the risk of Point of Sale software is who’s going to disrupt Intuit? Who’s going to disrupt Xero and be the next players? It’s not going to be another accounting software provider because they’ve already got too much of a head start from accounting. What’s going to disrupt them is a Shopify or a Square. They’re the two that I think have the most likely opportunity to disrupt the accounting software space because they’re doing all the operational stuff for business.

Matt:                General ledgers in accounting is a byproduct of what happens from an operations perspective. The collection of data at an operational level leads to a debit and a credit in a general ledger somewhere. So, what Intuit and Xero in particular are strategising is, well, we need to start capturing that operational data and the operational data tends to employee. So, there’s been move it on the HR space. A couple of years ago, Intuit bought Tsheets. Xero bought Planday. They’re getting those employee time sheets, that operational data. They’ve then both gone and looked at inventory and eCommerce. So, Xero’s recently made an acquisition of LOCATE Inventory, killed the product off, but to bring in the acqui-hiring of the employees to be able to build in the eCommerce inventory management capabilities into the Xero platform. Interestingly, Intuit bought TradeGecko. Again, basically killed the product off outside North America because all they were really looking for was the capabilities around eCommerce and inventory management to bring it into the platform.

Matt:                So, they’re gradually filling these whole on these logical things to create barriers to competition to the likes of Square and Spotify. Sorry, not Spotify, Shopify. And so, when I’m looking at it, well, what does Square and Shopify basically have that neither Intuit nor Xero have right now, and it’s absolutely screaming out to me, Point of Sale. So, I think this is a logical area. If I’m Sasan Goodarzi, if I’m the guys running M&A at Xero I’m going, “I think we need to be doing something in this space just to have something up our sleeve,” because certain amount of the population is retail, and it’s a hold in our systems where Square is… If I go to every cafe in Australia at the moment, every new cafe seems to be putting Square in, whereas three years ago it was Kounta or Vend or Revel. It was probably one of those three.

Matt:                No one isn’t putting Square in at the moment. Correct me if I’m wrong, but around Sydney, every new cafe has Square. Why wouldn’t you when you get the software for free. If we close down because of COVID, we’re not paying for it. We’re only paying a percentage of the transactions. Why wouldn’t you? So, they’re doing very well. It’s a cool brand. They’ve got distribution through Officeworks and all these sorts of things. Now, what is a general ledger? At the back end of that it’s just a debit and credit going somewhere. And in fact, you look at the back end of Square. They actually have an accounting API. They just don’t have the front end of a general ledger system yet. It seems a logical thing for them to do, and I’m sure when you’re looking at your risk register at Xero, and you’re looking at your risk register, Intuit, you’re going, “Well, who’s more likely to unseat this.” I’d be worried about Square and Shopify.

Heather:           Yeah. And they’re almost, and I don’t know the numbers, but I would’ve thought that they’re almost big enough to turn around and buy something themselves.

Matt:                Certainly, Xero could be acquired by… Xero’s a fraction of the size of Afterpay. What a Aussie success story Afterpay has been, despite what’s happened in the last few weeks, but Xero’s got a market cap of about $15 billion at the moment. Well, Afterpay sold for over $100 billion market cap. So, it’d be easy for Square to acquire Xero, which would then probably put Intuit on edge. I’m not saying that’s going to happen.

Heather:           That’s not your prediction.

Matt:                No, it’s not, but it could. I don’t know, but I think it would potentially be Australian Competition Commission issues with that happening, but who knows? Yeah. But look, acquisition does seem to be, and this is a common theme, a fast path to innovation once you become large and bureaucratic. It’s impossible for a large organisation, not to have some level of bureaucracy and risk management in place that slows down innovation. Small companies are agile and able to make mistakes with little consequence. Large companies can’t make mistakes without consequence. So, that’s why acquisition is very attractive.

Matt:                Particularly, when Xero goes and raise on the Singapore Stock Exchange debt at 1% interest rate, right? It’s free money. It’s literally free money. They go and acquire anything and they convert it into their asset, and their multiple’s going to be more than what the multiple on the acquired asset is pretty much 100% guaranteed. Let alone the fact that the money they use to buy it cost them nothing, which then raises the question. Why on earth did they give all stock to Planday? Why didn’t they use more debt? Planday was paid for by the shareholders by watering down their stock, not through debt that’s costing Xero nothing that they’d already raised on the Singapore Stock Exchange. Again, I don’t understand that decision. Again, where my what would Matt do actually completely misses the mark on what… And the guys at Xero are far more intelligent than me. There’d be logic behind it, but I didn’t understand why Planday would be a stock based acquisition when it could have been a cash-based acquisition based on free money.

Heather:           Yeah, absolutely. No, I agree with that. Yeah.

Trent:               Interesting times, I tell you it’s never a dull moment at the moment. Just when you think I know we got through October, November, and it was like every other week there was an acquisition or a merger or something. It’s exciting. I’m waiting for that Netflix docu to come out as we speak. I think it’d be great.

Using cheap debt to smash together a software company

Matt:                I think there’s a long way to run too, Trent. I think what will happen. I’ll put this prediction out there. There’s going to be someone else who pops up in another one of these roll up plays. Like Access Group is just a roll up group. It’s not really a software company. At the end of the day it’s just using debt to smash together a software company. In Australia, we’ve got someone like ReadyTech. ReadyTech’s a listed ASX company that owns four payroll products and student management software and government software, and they’ve smashed them together as a company. It’s not really one company. It’s divisions of a company, but because of the multiples around software companies, it’s an attractive investment opportunity and their share prices more than doubled over the last 12 months. And so, I think there’s going to be more of that whilst interest rates remain low.

Matt:                Now, inflation’s gone up, some supply chains are in trouble. Maybe this low interest period is coming to an end. So, do we see a real flurry of acquisitions prior to interest rates going up? I don’t know, and will interest rates going up slow it down or do we just continue to revert to giving stock as a way of acquiring companies like the Planday acquisition so it doesn’t actually matter what interest rates are at. It just depends on the individual companies. I think there will be significantly more acquisitions this year. I think that there’s lots more scope for acquisition for the big guys, and there’s more scope for other private equity firms to start to pull together more of these software company roll ups.

Matt:                If I just look at the ecosystem around Xero and QuickBooks, I think there’s a number of those companies have got to about two million dollars in rev. They’re a bit small for a lot of acquisitions, but I think there might be some merger and roll up opportunity around smashing together two or three or four of these two to three million turnover businesses into a sizeable chunk of a $10 million plus business that then could be listed itself or could be flogged off to a larger buyer. So, I’m expecting a few of that to happen in these days.

Heather:           Absolutely. It sounds like it has been interesting for the last decade watching these people start in very, very small companies. And now just they’re multimillionaires through that growth that they’ve undertaken during that time.

The next big purchase: POS, Job/Practice Management software

Matt:                I wish I had a started inventory management software five years ago or six years ago because every one of those guys has sold in the last two years. So, everyone from Unleashed to DEAR to Cin7 to Neto, all the inventory, to LOCATE. All the inventory management software products have sold. So, we were talking about this the other day, Trent, what’s next? I think we are going to move from inventory. I’ve mentioned Point of Sale. I think the next one is job management, practice management type software, not just in the accounting space. We’re not talking about accounting practice management. I’m talking about professional services software. The likes of Scoro, Accelo, Teamwork, these products, I think are the next ones that are on the radar for the big guys to acquire.

Heather:           Yeah, absolutely.

Is there anything else specific that you see in the future or should I throw some of the buzzwords that I’m seeing out there?

Matt:                Oh, look, I’ll just circle back to where we started. I think the workforce of the future is probably going to get a lot of attention from investment acquisition and companies over the coming short term. I think more and more people are going to invest in their people and the people need to be supported by technologies. And it’s not just operational technologies. It’s going to be software, everything from onboarding a new employee through to how the team communicates, and look there’s products out there. And Microsoft, I think it’s scary how good they are at doing everything.

Matt:                No one else is coming close to the end to end suite of Outlook, Teams, through to Microsoft Dynamics ERP. Like that suite, who’s going to be competing with them? Does it mean Google needs to go on and acquire an ERP product, an accounting software product? Do they need to get… Where’s the competition going to come from for Microsoft. Oracle probably, these big boys. They’re not going to get disrupted by a small player. And I think that’s why Slack I think gave up in their selling to Salesforce because Salesforce can compete with Microsoft. I don’t think Slack could have on their own. So, they started by taking Microsoft to court about Teams in Europe, but then ultimately let’s partner with someone who can compete.

The big boys just keep getting bigger and bigger. Will antitrust laws need to break them up?

Matt:                So, my worry about the future is that there’s too many barriers to entry to too many industries that the big boys just keep getting bigger and bigger and bigger. And so, at some point we now need to see antitrust laws come in and start to break up the company. I think maybe not this year, but certainly next we’ll start to see, “Do we really need Apple to be a $3 trillion market cap company? Or is it in the interest of the globe that they get broken up and separate the hardware out from the software or these sort of things.” It’s going to take a brave government to try and break them up because the legal defences on the private company on the company side compared to the government side are going to be fairly large.

Matt:                I think antitrust is going to be something potentially in the US is where it’s got to start because that’s where all these big companies are coming from. But if we don’t see it, we’re just going to see these big companies get bigger. Microsoft will continue to get bigger. Google will continue to get bigger. Facebook will continue to get bigger, or so Meta, no matter how many name changes they have, they’re all still. Alphabet will get bigger. Meta will get bigger. Block will get bigger. And if you don’t know those three company names, they’re Google, Facebook, and Square. Square is not square anymore, anyway.

Heather:           Yeah, absolutely.

Do you think that in terms of the pandemic for the last two years has impacted the digitalisation of small businesses and some people have said they’ve seen a seven year adoption in the last two years. Do you have any thoughts on how that’s going to play out next year?

Matt:                The best meme I’ve seen in the last two years was who drove your digitisation strategy within your business? Was it your CEO? Was it your CTO or was it COVID-19? And unequivocally COVID-19 has forced companies who may have been uhming and ahhing about digitisation to go digital, right? So, it’s no longer a question about using technology because you can’t operate a business without it. As far as the accounting software space, I think for the most part that war’s been run and won. Everyone’s got effectively some form of remote access to their software, if not true cloud software today. Certainly, we are well past 55, 60% of businesses are using products like Xero and AccountRight. Even the ERP space is now dominated by cloud based solutions like NetSuite and Dynamics and MYOB AccountRight and Intacct. These products are dominating that just no one’s buying legacy systems anymore.

Consolidation due to app fatigue

Matt:                So, how’s it play out to get back to your question, Heather, it’s already played out. The question is how now it consolidates. What I’m seeing is people getting sick of add-ons, like having six and seven add-ons just becomes too hard to manage. And there’s generally some level of frustration that they don’t quite do everything or who do we ring when something goes wrong and these sort of thing. So, I do see a lot, and maybe just the space that I’m in, but I do see a lot of app fatigue I like to call it where people would actually prefer to have a lesser system if it means one throat to choke.

Matt:                So that’s, I think getting understood by the likes of Intuit and Xero with their acquisitions because why do I need Dext if I can get Hubdoc as a part of Xero? Look, we won’t go into that argument because there’s lots of arguments to and for, but as a simple small business, I actually struggle to see the benefit of some of the add-ons, and is it in the interest of the client? Maybe not in the long run because we then end up with these super big companies who control the price. But in the short term, I think app fatigue means they just want something that works without having to call 15 people for support when something goes wrong.

Massive opportunities for niche solutions: The Riches are in the Niches

Matt:                So, does that answer your question, Heather? I think how it plays out is I think there’s more consolidation because people want fewer people to deal with, but I do then see there’s still massive areas for niches. Now, I own two software companies that really run in niches. So, I’ve put my money where my mouth is on this. There’s still where there’s a particular specialist solution. The big guys are never going to compete with vSure on what I do with work rights. Xero’s never going to care enough about onboarding new staff and your legal obligations under the Migration Amendment Act 2013 to actually build a proper work right solution in that space because the average every small business doesn’t care, but we’ve etched out a niche because the top 1,000 companies in Australia do care. And so, if we can find those niches, there’s still great opportunity for founders to get out there and own niches. The question is, do those niches then get acquired by big guys? Or what happens with those companies? Can they remain standalone niches or ultimately are you forced to continue to grow? And I don’t have the answer for that right now.

Heather:           Yes, absolutely. And thank you very much for sharing that with us. Really appreciate all of your thoughts in that area and on digitalisation. Interestingly enough, in terms of the multiple add-ons, I know that some people are now talking about Microsoft now has a practice suite that’s perfect for accountants within it. It always takes me a hard time to find it on the internet, but it’s out there. I know some of the practices in the US are using it. So, pulling back, getting rid of the add-ons and just moving all into Microsoft, which is interesting for the accountants in practices. So, we are coming up to the hour.

What are your thoughts on the metaverse, sustainability, supply chains? What do you see of conferences going forward? And the future of digital cards?

Trent:               I don’t know. I try to be a person that I’m interested in what I’m interested in. I don’t try to pretend to be good at anything else. So, well, I try not to. If it seems that way, I apologise, but things like the metaverse I haven’t taken those steps yet to understand it. Some of it, I look at it I’m like, “I don’t get it. It seems silly.” But then I see people are buying multimillion dollar properties in the metaverse and I’m like, “What am I not getting here? Why are we spending money on…” Especially in my mind I’m like, “Is there not just infinite digital spaces?” So I’m like, “Why would I spend?” And this is my lack of, I have no idea.

Trent:               Similar in the blockchain, I’ll probably… Sorry, in crypto side of things as well. I get the blockchain piece. I think that’s really powerful. I think crypto I’ve not spent any time, maybe a little bit to get it, but it’s just not something I’ve been interested in. I don’t know anyone that is in love with it enough that it’s… Because I can be very influential. Ask me about, I just started watching Drive To Survive on Netflix, the Formula 1 show. Tuesday last week couldn’t care about Formula 1. Today, two seasons deep I’m ready to go to every F1 track next year. I am heavily converted big fan. Not because they named a car after me either like the McLaren. That’s not the only reason, or that the Aussie is also at McLaren, also there as well. There’s a lot going on though, right?

Trent:               So, it’s a very important space that I don’t think impacts this part of our world yet when I think about accounting. I mean, you kindly threw in the digital card space there. I think just digital currencies, digital everything is the way forward. The way we spend money is changing all of the time, and that is going to continue to happen. It already happens in America, in the UK. It doesn’t happen as much here, but on the back of all the, I guess, my job depends on it right now, but everyone’s going to be looking at the way that they spend money this year and different ways of doing it. The bottlenecks, the transparencies, the data that we collect on the back of it. So yeah, look, it’s an exciting time for me, especially.

The criminal industry’s already adopted Bitcoin so it ain’t going anywhere.

Matt:                My two cents is look, I’ve lived and breathed technology for two decades. And so, I’m always interested in what’s new and I consider myself often an early adopter on technologies, but the one thing I’ve learned and it’s took me a long time to learn this is the best product does not always win. And often hype is enough to get adoption, even if the product is not that good. The example that’s always used is Betamax was far better than VHS as a technology and yet VHS dominated because the porn industry originally adopted it. And then basically people adopted it from there.

Matt:                I remember I was a kid when you’d go to the video store and there’d be Betamax videos and VHS videos. And it seems to be within a year, there was no more Betamax videos. And all those people went and bought a Betamax player, bad luck guys gone. But Betamax, anyone who knew their soul was a far better technology. And so, I am critical of blockchain, and some of the things that are happening from a technical perspective because globally we’ve gone from wide area networks to decentralisation to PCs to, oh, actually there’s benefit in centralising stuff in the cloud, because then we have a single source of truth, yada, yada, yada. So then they’re going, “Okay, let’s go back to decentralise.” But decentralised means replicating transactions across multiple nodes globally, which is highly inefficient and against a lot of technology, and I could argue that point.

Matt:                But my point I’m getting to is doesn’t matter because there’s enough people now supporting what’s happening on the blockchain and with crypto, it’s not going to disappear. I follow people who keep running, it’s going to go to zero. Bitcoin will never go to zero. It may not be at $67,000 again for a number of months or years, but it’s not going to go to zero because there’s already adoption at least within the criminal industry globally. How many crypto lockers are actually requiring Bitcoin to unlock your system? So, in the same way the porn industry adopted VHS, the criminal industry’s already adopted Bitcoin. It ain’t going anywhere.

Matt:                So, my point is, when you look at the future, you can’t just be critical of the technology. You’ve got to understand the hype, and you nailed it, Trent. People are influenced. All of a sudden, and this is a global trend. The average age of the Formula 1 fan has something like halved because of that Netflix documentary, right?

Trent:               It’s so good.

Matt:                It was something 40 year olds used to watch to now it’s a 20 something year old thing to watch.

Trent:               It’s such a team sport. It’s so good. I just thought it was about the drivers, and I thought this, that, and the other. you get into it. I’m like, “Yeah, the drivers are there, but they play so…” Sure, they have to get the car across the line, but there’s so much pressure on everyone else to bring that thing together.

Matt:                I don’t know if you’re an NFL fan though, Trent, but those people who aren’t NFL fans, if you forced everyone on the planet to sit down and watch the four games of NFL last weekend, I guarantee the number of fans of NFL globally would go up double. So, what Netflix has done with the Formula 1 is all these people have gone to watch it because it’s something to watch, but you don’t have to be an NFL fan to appreciate what went on last weekend in the NFL in America. And the point is it’s about distribution. If you can distribute that content to the right people in the right way, you will get adoption. So, it’s the company’s nailed the distribution and adoption element are the ones that are going to win. Not just the people with the best product.

Trent:               I 100% agree. Once upon a time, cool fun story for you. Guy used to call me the Great Light Hype. That was his nickname for me in all the Slack channels because didn’t matter what I was doing, it was out there, pebbles, waves. It was fun. So, yeah, no, I appreciate that we’re wrong though. I feel like I had good products to get behind at the same time, but yeah, influence distribution is everything. I think Heather you mentioned events before. There was a big surge towards summits, and I was a big fan of summits, done a lot of summits in the last couple of years. And we’ve seen roadshows delayed only this week.

Trent:               People are going to start looking for more consistent ways to run events and that’s continually going to happen digitally. Maybe I should invest in a metaverse summit where we can all virtually turn up and walk around. Maybe that’s my way of getting the distribution and influence I need on Meta. So, yeah, it’s if we can’t meet face to face then we’re going to have to keep meeting virtually and that content’s got to get out there somehow. So, it’s we’ll find a way.

Heather:           Absolutely. Thank you. Thank you to both of you for joining me today on Cloud Stories. David Leary will be impressed that you mentioned, goodness. I’ve even forgotten the acronym now, what was it? NFL? Was it NFL? Yes. Because he did just mention that.

Trent:               He’s salty. He’d be very salty.

Matt:                So, he, unfortunately, lost on the weekend, Heather.

Heather:           Oh, did he?

Matt:                He thought he had the game won and with 14 seconds to go everyone on the planet thought they had the game won, and then they somehow lost in overtime. So, basically poor old David probably hasn’t come out from under his bed yet.

Trent:               Don’t tag him in this because very salty.

Heather:           I probably listened to him talking about it from a Friday’s recording before the weekend.

Trent:               It’s funny. I saw a lot of tweets and then they just stopped. I don’t know. He was very loud and vocal about the Bill’s mafia.

Heather:           He does love his Buffalo Bills.

How can people get in touch with both of you?

Matt:                For me, I’m a bit of a Twitter person. If you’re on Twitter at @MattPaff, M-A-T-T P-A-F-F. I am on LinkedIn, but please don’t just send me a connection request without actually adding a note. It is probably the one thing I cannot stand about LinkedIn is that I’ve never met you before. If you send me a LinkedIn request, got to understand that I get probably 100 a week. People read my blogs and then they want to try and sell me something or try and get me to blog about their product. And so, don’t take offence. So all I’m asking is send me a note. Say you heard me on Cloud Stories or the reason you want to connect. So, I know whether you’re trying to sell me something or whether you actually genuinely want to connect. I think if we’re talking about the future, I think LinkedIn is a platform that is prime for disruption because it is… I love it, but at the same time it’s driving me crazy at the moment.

Heather:           It has some functionality that needs very, very much improving on it. Yes.

Trent:               I think just update your setting so that people can just follow you like they would on Twitter and then you won’t get all the connection requests.

Heather:           Yeah, you can do that.

Matt:                They can follow. But some people like to connect because they want to be able to have a message conversation with you, that sort of thing. But you’re right. You can just follow me, but yeah.

Heather:           People ask you to marry them. That’s what I get.

Trent:               I haven’t had that yet.

Heather:           All the women out there.

Trent:               I’m obviously not doing the right thing.

Heather:           I am a prince from a country and I need a wife. So, thank you.

Trent:               Yeah, I know.

Matt:                I got to say it. I hope this doesn’t come across as rude, you’re looking fabulous at the moment. You had your hair done or something? You look something different about you.

Heather:           Well, Matt, I got dressed three times in a row for this session. So, it was the only time I get myself ready for the session. So, for people listening in, it was rescheduled three times, but I got myself all dressed up for it three times in a row. I spent the rest of the day dressed up.

Trent:               I’m wearing a shirt. I don’t know if you guys notice.

Heather:           We’re just watching you swelter in that car, Trent.

Trent:               No, I put the window down. It’s okay. We’re surviving. We’re surviving. It’s good. Hey, this was great. Matt, you’re fantastic. I could sit here and listen to this all day. That was awesome.

Heather:           Yeah, absolutely, Matt. It was such a pleasure to have you on, and you’ve just got such deep knowledge about aspects of the industry that I’m not aware of or don’t understand and really appreciate you explaining that and sharing that with our audience. And Trent, it’s always a pleasure to have you on the show and have all your insights shared with the audience. So thank you very much and everyone now knows how to get in contact with both of you. So, thank you for joining me.

Matt:                Thank you. Cheers.

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