I really like KashFlow. I like how it has shaken up the accounting software market. I admire the way the company has managed to get under Sage’s skin to the point that KashFlow’s name is never far from a discussion about SaaS/cloud – often in bitter terms. I like that it has paved the way for SaaS accounting adoption. I like that its customers don’t fight shy of saying how good they find the solution. I like that its CEO Duane Jackson has always been prepared to be open and transparent – wherever possible – and is gutsy enough to put his head on the block around issues many think about but few dare articulate. All of that is goodness and much needed. But….the kerfuffle around product roadmaps reveals an altogether immature sense of what the market is about. That needs fixing.
Like it or not software companies have to grow and carve out positions of leadership. The fact there may be millions of potential customers makes that even more important because as history repeatedly teaches us, there can only be at best three winners in any tech market. Saying the market is big enough for many players represents a false hope. As a buyer, you want to be sure you’re backing one of those winners because in the long term, that’s where you’ll get the best bang per buck. [Side note: Sage will probably be smiling at that one except for one thing: winners only last so long before the next tech shift. They once were innovators who deserved their position of leadership. That is no longer true.]
We are entering a phase of market development where the winners will be determined. That might seem an odd statement given the relative size of the SaaS/cloud market. However, there are enough leading indicators to suggest that those vendors which seize the current opportunity will stride out ahead of the pack by some distance. So far, vendors have been happy with 100% year over year growth. In the coming years, that will not be enough. They will need at least 200% growth in order to build a sustainable business. That will likely take two years but the ground is already prepared. Why as a buyer should you care?
Past history teaches that selecting a winner reaps genuine benefits. Selecting an also ran leads to different results. SaaS/cloud applications provide a real opportunity to transform the way business works. We are way beyond the capex versus opex discussion when thinking about SaaS/cloud versus on-premise. We’re now into discussions about how SaaS might provide competitive differentiation that sticks. This is the point, where, in my opinion, the vendors need to start explaining their differentiating position with clarity and meaning. That in turn requires a commitment to explaining where they are planning to be in maybe a year’s time. The pace of change is such that looking more than one year out is probably futile. Hence my insistance upon roadmaps.
So why am I picking upon KashFlow? As one of the current leaders it has a position to lose. That can happen in a heartbeat. It happened to Dun & Bradstreet in the mid-1990s at a time when SAP was a minnow while D&B had a brilliant solution. D&B faltered and the rest is history.
KashFlow’s time spent poking fun at Sage is done. That is a tired idea. So what’s left in the company’s marketing locker. Right now, the answer seems to be ‘not a lot.’ That’s not a negative but simply a statement of fact. What should it do next?
Duane Jackson has done a sterling job as CEO and factotum for a small but rapidly growing business. I have previously said that it needs new leadership. Duane’s partner Lord Young is not in a position to offer the kind of day to day leadership the company needs. Signs of fragility emerged at the end of last year when the company’s then CTO departed. That is a critical position I understand is currently being informally filled by a developer. How well I cannot say though the recent solutions release indicates the company is not losing focus on delivering much needed functionality. But if it is to retain the love of its customers and continue on its current trajectory then three things need to happen:
- Duane should step aside as CEO and recruit a professional manager.
- Find a solid lead solutions architect who can drive the product vision.
- Hire a well seasoned operational development manager who can fill the CTO role.
The combination of these roles with Duane taking the strategic marketing position will provide the right level of adult supervision this company needs in order to fulfil its potential. Whether that eventually comes from a public listing or acquisition remains to be seen. I know for example that certain other vendors have been sniffing around KashFlow. Duane says the company is not for sale. In truth, it cannot be sold with its current structure. There are way too many risks that would play against a healthy valuation. Not least is the unhealthy reliance upon Duane at the helm. But such a restructuring at this point will provide Duane with the breathing room he needs to rethink the company’s marketing strategy.
There is precedent for this. Google employed Eric Schmidt as CEO while the founders were left to do what they did best. It was described as ‘adult supervision.’ It was a sign of maturity that despite their technical brilliance, the founders realised needed a hands on operational manager to help steer them into a powerhouse position. I see KashFlow at a similar inflection point.
The company has already stated that it would like to take inward investment. The fact it was handled in clumsy fashion bears out my logic in this analysis.
As a buyer, you should take careful note of what happens next. Inflection points are important for technology companies because they define the course of the future. Some succeed in navigating treacherous waters, some do not. I’d like to think KashFlow will be in the former camp.