Don’t be a Blockbuster Video: Why smart firms constantly challenge their business model

Elaine Clark started in the accountancy profession aged 16 when her school suggested that perhaps she shouldn’t stay on for A-levels. Upon joining a local firm (“I used the Yellow Pages to find a career. I started at ‘A’ and found accountancy”) she completed a degree in Accountancy and Data Processing and qualified as a chartered accountant with KPMG.

It was in 2007 that her ambition to set up an internet business was realised and Cheap Accounting was born. Here, Elaine talks about the lessons learned from creating a brand new market, the ramifications of the current online land-grab, and why good firms should regularly challenge their business models…

I always had an eye on the IT marketplace. All my previous roles had been systems based. I was interested in business process engineering, systems and doing things differently. I’d had a number of roles in blue chip companies but I got to the age of 40 and asked myself “what on earth am I doing!?”

So I quit.

It was probably the best thing I ever did. I’d taken a year out and gone back to college to complete a masters degree in Internet Computing and realised I’d always wanted to start an internet business. I just had no idea what it was going to be.

Then, in January 2007, Cheap Accounting was born. I had the dream of doing accounts online without ever having to meet the clients. If they gave us all the data via an online system then I was certain it would work.

There were no cloud accounting systems. So I wrote my own

There were no cloud accounting systems. So I wrote my own. And that’s how we launched. A friend had recently set up on her own business and she agreed to let me do her accounts. She recommended me to a lot of people and it went from there.

If you build it…

I didn’t realise that I was first to the market at the time because there was no market! I sat down and worked out that it’s only debits and credits – not all that difficult to code. So I wrote what I wanted for small business – because I understood small business accounting – and just coded it.

To build on the success of my first clients I knew it was going to be about “brand”. Of course, when we started in 2007, it wasn’t a brand it was a name. But it was a good name. After all, what do people looking for a cost-effective accountant type into a search engine?

I then thought about how to drive people to us without a shop front. Why would they come to me? You have to have a true differentiator. I knew that being online meant I could transcend geographies and not be restricted to congested local markets. So I developed my proposition based on this and proceeded to get the word out.

…They will catch up

When we launched there were no other systems. Since then a lot of software developers have built cloud accounting software – it’s a real land-grab. Some are better than others. A lot of them are overpriced in my opinion and I think some will go by the wayside in the near future.

Some firms are now using online as a way of merely keeping up

Some firms are now using online as a way of merely keeping up. They take their existing accountancy service delivery and bolt one of these systems over the top. But it’s much more than that. You need to think whether you’re redesigning your business processes entirely or you’re tweaking it to deal with the online world. I think the threat firms face with this approach is that they still have overheads that won’t be sustainable when offering an online service.

So don’t be a Blockbuster Video. Understand that a traditional, existing model is always challenged and you need to keep up in a sustainable, scalable way. It’s a real danger for firms who fail to wake up to what online really means.

The big boys

Now the big boys have finally woken up and done something about cloud accounting, it has given kudos to the market. KPMG spent something like £40m and, whilst I’m not entirely sure what they spent that amount on, from my point of view it’s great. My thought processes eight years ago have now been given credibility!

I’m not sure that some of the firms who say they’re specialising in the SME space are certain of what their market is

I think the definition of SME by the larger players is interesting. It’s such a huge catch-all term that encompasses over five million businesses. I’m not sure that some of the firms who say they’re specialising in the SME space are certain of what their market is. I don’t think they can be agile enough to provide that service to the types of clients we work with.

The vast majority of these five million companies are micro-businesses – the ones that need accounting services at a price they can afford. I’m not sure – though am happy to be proven wrong – that the BDOs or the KPMGs can operate in that space because they’re bound by their overheads.

The problem with ‘value-add’

What’s also interesting is that larger firms talk about using online to free-up resources in order to sell ‘value-add’ services. Do they really understand what that means? Because value-add is competitive. It’s a hard sell. It has a high cost of sale and in the end you might not even win the work. Value-add is an all or nothing play. If I were to rearrange my business processes, I’d be concentrating on winning more recurring and repetitive fees from the clients I’m going to keep and who will recommend me. I wouldn’t focus on isolated and hard-to-sell consulting services.

Why would clients want to spend more on fees just to give their accountants more opportunities to sell to them?

Similarly, the research I’ve seen suggests a downward push on accountancy fees. So we’re in a situation where there’s an appetite from the client to reduce a fee. Why would they want to spend more on fees just to give their accountants more opportunities to sell to them?

Making rain from the cloud

There are two things that accountants moving to the cloud need to realise.

  • Access to the real-time data is key. So use it. Use it in a subtle way to come up with an effective value-add service. Take it to the client! You have to be better at identifying the opportunity and then packaging it in a way that is compelling to your clients.
  • Go out to market and offer to help your clients move online. Sell the benefits of your own system and offer the conversion as a service. Firms will need to get better at coming up with the products and then selling them. Not at all easy for many accountants…

So, when considering the move to an online offering, the smart and the forward-thinking firms will constantly challenge their business models. And, in an aggressive and increasingly crowded market, the others will need to follow suit…