Yesterday, I had a conversation with Duane Jackson, CEO Kashflow. The company’s site has plenty of information worth mining as both buyer and seller but I wanted to get an update for where it is at. Duane was good enough to share a lot of information with me which helped me get a better understanding of what he sees as the issues impacting the company’s ability to grow that I can both sense test and parse against what I see happening in the market generally. Not that they’re doing too shabbily. By the numbers:
In the last year, customer numbers doubled to ‘more than’ 5,000 and revenue came in at £500,000. Staff now total 20 and the company has around 200 accountants named as partners. The company expects to announce major partner deals in the coming weeks and months. We talked about contracted monthly revenue and he claims that’s growing at a compound 10-15% per month. Kashflow charges individuals £15.99 per month and obsservant accountants will notice that a quick tap on the calculator suggests the company is getting a fraction of that from the customers it has on board. Several factors come into play here. First, you can’t do a straight 500,000/5,000 and come up with the right answer because numbers are rolling all the time.
Second, Kashflow has a particular partnering model where practitioners pay £799 pa to be on the partner programme. With that they get the right to onboard a single client FOC. Partners that bring clients onboard only pay (or charge if they choose) £79 pa. We didn’t go into the mix between what you might call wholesale and retail sales but trawling through the professional firm references, it seems that at least some firms are actively onboarding end users. This is one of the biggest obstacles to growth and a topic we discussed in some detail.
Duane confirmed what many will already know and which was implied in John Stokdyk’s report of a recent meeting between practitioners and vendors: the value proposition is not as well communicated to professionals as it could be and is far harder for them to transmit onwards to clients. The Sage factor is certainly something no one can ignore although I think it is becoming increasingly easy to knock over that particular pin when weighed against the reasons given for sticking with it.
We discussed regional and industry differences and agreed this is something you can’t ignore. Coincidentally, I later had a conversation with a long time follower of this blog who is in practice at a top 50 firm based in the north of England. He confirmed there is a certain ossification in the profession with an ageing partner population. He observed that there doesn’t seem to be a cadre of businesses that aaspire to mega growth. Instead, he sees many more lifestyle businesses where growth is secondary. He also confirmed that the way technology is allowing new players to enter the market that are much more business focused represents a genuine risk. It’s no surprise that I agree. What was more interesting though was this person’s outlook.
I’m one of the few who believe there could easily be a double recessionary dip in 2010. But even if that isn’t true, this person believes the aftershock will make business continue to be cost conscious. He reminded me of the early Thatcher years where, even after reducing top rate tax of 83% to 60%, there were several years of economic difficulty. I remember them well. Curiously, I believe these conditions represent a strong opportunity for practitioners with vision.
Firms should focus on lowering the cost of production of these compliance based tasks, and try to help clients grow their business. That is where the high value work is. Finally, don’t forget that Cloud is not just accounting, for many businesses the benefits to be gained from Web based CRM, and Document Management totally outweigh the number crunching, it seems again the profession focuses on what we like, not what is important to the clients.
My concern for Kashflow rests on their future ability to grow. Understanding the professional portfolio is critical to making a strong business case and here I think Kashflow is getting it right. Some niches will be suitable for viral styles of marketing but many won’t. This is especially problematic for general purpose services like Kashflow that is trying to appeal to a broad audience. The company has no plans to take capital which I believe is required to feed marketing. This is very different from my position several years ago. The fact is that with so many competitors, it is vital for any player to make strong inroads now because there will be consolidation. On the other hand, the company has shown a willingness to help resellers tweak the application. that’s a differentiator. Whether it is sustainable as the company grows without a change in the business model is another matter.
Despite my reservations, it is good to see that in an evolving market, Kashflow is constantly thinking about how it goes to market, trying new things and willing to ‘fail often.’ To its credit the company is much more transparent than others. While that may seem foolhardy to traditionalists, it works in Kashflows favour. That’s because its agility and flexibility mean that when something doesn’t quite work out it can move to the next thing very quickly before it becomes damaging. These are all lessons from which any vendor can learn. They’ll not be able to replicate but they can adapt.