Accounting on the cloud has often been characterised as something that will never happen or at least no time soon. If you look at the SME market though, nothing could be further from the truth. It is transforming the crusty world of professional accounting, a market segment you would intuitively think as impregnable to change. The WOW Company, based in the UK is a great example. It is a world away from Doolittle Plunder and Grabbit, the alternative name some wags used for what today we know as Deloitte.
As backdrop, I've been following the cloud accounting space for about seven years with an emphasis on the SME space and the UK's professional accounting world. Watching the likes of FreshBooks go from simple billing and grow to a business serving more than five million customers has been a fascinating journey. In the UK, it has been interesting to watch as three vendors: KashFlow, Xero and FreeAgent have dismantled the Sage incumbancy, progressively sucking up all the core application organic growth that should have been Sage's. During the last earnings season, it became apparent that accounting in the cloud is coming of age across all sectors. All those who chose to announce results reported staggering growth during 2012. This from an Arxiscloud report about Intacct's 2012 performance:
[Intacct]...was able to increase new customer bookings by more than 47 percent over 2011. Intacct also set a quarterly growth record in the final three months of 2012 attracting the attention of hundreds of firms looking to graduate beyond reporting processes driven primarily by Excel and QuickBooks.
Checking comments from Zach Nelson, CEO NetSuite during last month's earnings call, he referenced a growing list of mid-tier accounting firms that are building NetSuite practices. Crucially, he mentioned Accenture, one of the last consultancies on the planet you'd associate with mid-tier cloud apps.
But what has really stood out has been the way in which accounting on the cloud has allowed for the emergence of a new type of professional practice. Phil Wainewright is fond of arguing that the real benefit of 'cloud' comes in its potential to transform or surface new business models that simply would not be possible without using cloud solutions. He talks about going from 'fixed to frictionless enterprise.' See this presentation:
It sees the numbers as a way of articulating how a business goes forward rather than taking the traditional rear view mirror approach of many firms.
It has reversed the traditional cost and fee structure from one where accounts production accounts for 60-70%, tax 10-20% and advisory maybe 10%. This firm spends the vast majority of its time on advisory. Compliance and accounts production are seen as necessary but capable of efficient production.
Extensive technology adoption provides the enabling tools. It uses Xero for client accounting, VT for accounts production. It is just starting to use WorkflowMax as the basis for job management. Skype and Yammer figure in its arsenal of tools.
In 2011, I filmed a small group of professional accountants who have ambitions to change the world. Among the group was Peter Czapp, partner with WOW Company. He talked about how cloud accounting was allowing the firm to grow rapidly, despite being located in Andover, a small town in rural England. The talk was all about customer intimacy, real-time service, the ability to move beyond traditional number crunching and annual tax preparation.
My sense is that not only has cloud provided the tools to fuel a new business model, but also allowed WOW Company to recognise there is significant merit in remaining local.
In 2012, I attended Xero's first UK conference and listened as Paul Bulpitt, another WOW Company partner talked about how cloud accounting is enabling collaboration between professional firms. For anyone familiar with the professional accounting world, this is exciting stuff. Why? Professional firms don't collaborate except to the extent they absolutely must have expertise they do not possess.
So when I saw that WOW Company is opening up an office in the heart of London's west end this week (think Market Street, San Francisco or Times Square, New York) I wondered what is going on. How do you say that you are national by virtue of what the cloud offers and yet feel a need to set up shop in one of the most expensive areas of the UK? Here is the explanation:
With more than 50% of our client base situated in Central London, it seems obvious that we'd have an office in London, but as one of the first 'cloud' accountancy firms our appeal has been that we can work with clients anywhere and everywhere with geographic location no barrier. The fact is that people still like to see the whites of their accountants eyes, from time to time, and being based just round the corner clearly makes this easier. This 'virtual' world can be a bit lonely at times! From the Wow point of view, the new office is a fantastic way for us to keep growing our business too.
I can envision a time when it will not be necessary to see your professional accountant at all but will conduct all business online, whether that is through collaborating via real time services or using services like Skype, Google Hangouts and the like. It is one scenario that has the benefit of being highly efficient and cost effective.
But...as WOW Company implies, business is done between people and you can never truly replicate that personal interaction using virtual services. To that extent, the world of cloud has not been able to fundamentally change the human requirement to connect personally. I doubt it ever will.
What I find startling is the speed at which WOW Company is expanding. It didn't exist eight years ago. It could not exist in its current form without cloud services. I cannot remember the last time I heard about a regional, one office practice making this kind of leap. I can see how they are taking a traditional business model, dismantling it and reforming it in their image. But all those things are not enough to explain how they are expanding in this manner. My sense is that not only has cloud provided the tools to fuel a new business model, but also allowed WOW Company to recognise there is significant merit in remaining local.