It’s time the mid-market accounting software companies woke up and realised it is 2018 – and that there is a once-in-a-lifetime opportunity lying right in front of them.
In Australia, MYOB has decided not to add the government-mandated Single Touch Payroll service to MYOB Premier, the accounting software which holds as much as half the market (by my estimate) for companies over 20 employees.
And yet none of the mid-market software companies are in a position to genuinely capitalise because they aren’t even competitive with the likes of Xero and Intuit!
Where are the bank feeds? How about a solid ecosystem of best of breed add-ons? How about AI and machine learning? How about a modern, mobile optimised user interface with decent user experience design?
Why are these the domain of small business systems such as Xero and QuickBooks Online at one end and corporate solutions like Workday at the other? What happened in the middle?
A recent experience with a client really got my goat and compelled me to speak out.
First, some background. I’ve spent the past 18 years working in mid-market accounting and payroll software.
I have recommended and personally run implementations for literally hundreds of accounting and payroll system projects for mid-sized clients through a couple of consulting businesses I have owned. I’ve been a shareholder and General Manager of a “leading” mid-market vendor.
I’m no-longer young enough to think I know everything but am forthright enough to retain an opinion built on experience.
What is the mid-market?
Government agencies calculate there are 50,000 businesses in Australia with more than 20 and generally less than 200 staff, let’s say 60,000 if you include New Zealand. Typically, turnover is north of $3 million and they have three or more users of the core business system (industry dependent)
MYOB own this market. Not because they have white-labeled Acumatica (as MYOB Advanced) or acquired Exo, Greentree, Pay Global, Commac, IMS, etc. My research suggests that perhaps as much as half of these organisations still use MYOB (AccountRight) Premier Desktop (v19).
This is reflective of the low penetration of cloud accounting software in this demographic. While small and micro businesses have adopted cloud software en masse, mid-sized business – constrained by choice, fear and cost of change, sunk-cost fallacy, “functional parity” concerns and a dearth of quality advice – have remained tied to ageing software.Outside MYOB, my estimate is that no one company owns more than 10 percent market share.
The above graphic is a rough, historically segmented view of the accounting technology industry across Australia and New Zealand according to target market.
Reckon and Xero would certainly claim a fair stake in the mid-market, although few would acknowledge them as mid-market players.
Other software companies in this market include big international players (like Microsoft, Sage and NetSuite) and established/mature local players (like Attaché, Pronto etc).
There are levels within the mid-market. Pronto and Sage X3 are targeting very different price and functionality points to the likes of Attaché or (NetSuite) JCurve.
Most of these software companies would tell you that their primary source of customers for the past two decades were conversions from MYOB Premier or the old QuickBooks software sold by Reckon.
Setting the scene
Today’s story begins with a phone call from a former colleague. She wanted to validate the decision by her current employer, a not-for-profit, to move from Sage Timberline (aka Sage 300 Construction & Real Estate) to MYOB Exo.
My response was simply, “Why on earth would you be looking at Exo over MYOB Advanced?”
To the chagrin of the Exo partners out there I generally would not recommend someone implementing Exo in 2018. Happy to debate it with anyone, but the fact MYOB themselves use referrals to MYOB Advanced + People towards accreditation BUT NOT Exo (nor Greentree, nor Pay Global) speaks volumes as to where MYOB see their mid-market future.
A few months down the track the same colleague calls asking me to validate the decision to go with MYOB Advanced + People. I took them through my five-step process for choosing and implementing the right Accounting Tech: here’s a summary of the methodology.
They were already effectively at “Step 4: Make a decision and commit to making it work” and very keen to not waste any more time revisiting research and outlining problems. They were hoping I would just say, “Yep, go for it, that’s the right investment decision!”
I asked about their current state, desired state, non-negotiables, important and nice-to-haves, and came up these core requirements.
The core requirements
Here’s the summary.
A mid-sized NFP with a seasonal, casual workforce, that needs a decent payroll engine.
They needed reporting against Budget and Actual by “job/project/event/segment” (whatever term you want to use)
Moderate, seasonal transaction volumes
There were 4 accounts and payroll staff on the existing accounting tech and 20-odd staff on the customised procurement system.
I’m not sure MYOB Advanced is the right investment. What it offers in terms of grunt and flexibility is offset by the fact it is comparatively harder to use than SMB accounting software. It lacks bank feeds (despite MYOB owning BankLink, what the??) and don’t get me started on the payroll solution MYOB People. Timesheet costing doesn’t even flow through the accounting system and reporting…
MYOB Advanced is also a significant investment for an NFP.
I followed up with this question: “What are your thoughts on the likes of Xero and QBO?”
The answer: “They are small business solutions aren’t they? At that price point, we didn’t even look at them.”
This is a fair and common response. In life, price frames quality perception. In business tech, price is often perceived as proportional to flexibility and capability, which to be fair has often been right.
The cloud has fundamentally changed this value equation. Don’t confuse SME desktop accounting software with modern cloud platforms. It is like framing what a computer and a printer can do based on your experience with a typewriter. Yes they can output a page of prose, but if you think of a computer in terms of being limited to typing out and printing text you are missing the point.
Such is small business accounting tech when it comes to the cloud versus desktop software. Modern small business cloud platforms like Xero, QBO and even MYOB Essentials are built very differently to MYOB Premier (with a code base that dates back to Macintosh computing in 1982) or QuickBooks Desktop (its roots date back to DOS in 1983 and Quicken).
Technology has changed. Limitations aren’t what they used to be.
A small business platform like Xero or QBO + add-ons (KeyPay + ApprovalMax) would not only be far more cost effective solution but I believe a better solution, one that is far more user friendly and with functionality such as bank feeds, a better payroll and workflow engine. It would be far more suitable than MYOB Advanced and mid-market alternatives for this organisation.
The NGO still couldn’t believe that for a fraction of the licensing and implementation cost they could get a system that met their needs, let alone a better system.
So I arranged an end to end demo using their data. And the rest is history. But it’s not the end of the story.
The client informed the competing MYOB reseller of their decision. Back came a response listing seven reasons why my recommendation wouldn’t work.
And this is where I get exasperated!
Why is the same drivel I was using 10-15 years ago to convert MYOB Premier and QuickBooks (Reckon) desktop customers being trotted out in relation to Xero and QBO?
I urge everyone do the research. Don’t believe the salesperson’s falsehoods.
Here are the seven claims and the facts that refute them in 2018:
Claim 1: Transaction volumes
Claim: “These smaller systems are just not designed for high transaction volumes.”
The facts: While Xero do give transaction limits, these limits are far greater than the client’s current and projected volume. Anyway, Intuit do not have transaction limits with QBO (explained here).
Claim 2: PO Authorisation
Claim: “SMB accounting software is unlikely that you will be able to integrate a system like your procurement system or any other systems that may come along.”
The facts: Really?? They clearly do not understand modern APIs and how easy it is to integrate with the likes of Xero, QBO and MYOB small business products these days. And they clearly have not seen the likes of ApprovalMax, which come with “out-of-the-box” integration and workflows for Xero and QBO.
Claim 3: Reporting
Claim: “SMB accounting software can’t do customised reporting.”
The facts: Yes they can, and it was demonstrated with actual data. And if the standard reports weren’t good enough there are add-ons that offer enhanced, customised reporting! I seem to recall Microsoft PowerBI as a recommended add-on often with Acumatica. PowerBI can also connect to Xero, QBO and MYOB small business products – and there are dozens of other options as well!
Claim 4: Budgeting
Claim: “Small systems seldom have budgeting capabilities.”
The facts: Which small packages could they possibly be talking about? Practically every general ledger on the market has budgets. The reality is most people want to use Excel for budgeting. Beyond that there’s Castaway, Spotlight, Futrli etc, all integrated with SMB accounting software.
And if you mean in-system budget creation tools, sure they can be sexy in the sales process but rarely get used as everyone reverts to Excel!
Both Xero and QBO have great functionality around recording multiple budgets. (QBO is better than Xero as it has roll-up/dissected budgets as opposed to the independent budgets in Xero).
Claim 5: Audit trail
Claim: “These systems lack comprehensive audit trails.”
The facts: QBO has full audit trails. Xero’s audits are a WIP but that is still adequate given the limited users who will actually accessing the system.
Claim 6: Project Tracking
Claim: “Would this have the capability and flexibility in an SMB software?
The facts: Yep, both Xero and QBO now have projects and there are dozens of add-ons that also do that, best of breed, as good as or better than Acumatica!
Claim 7: Chart of Accounts
Claim: “The chart of accounts in SMB software is in alpha format and is not flexible to provide the reporting you’ll need.”
The facts: Coding is optional, alpha or numeric, though frankly the very notion is “old school”. Reporting is not driven off the code structure but the way in which you categorise the accounts. These system are easier to use and yet still relatively flexible with Class/Location/Tracking codes.
The reality is, whether it be an NFP, a wholesale stock and debtors business, professional services or any other industry, SME cloud accounting platforms like Xero and QBO offer a serious and genuine alternative to mid-market ERP systems.
Decisions *should* be made:
by accepting that compromises will be required regardless of the solution you select;
on a ROI basis;
on a feature for feature comparison, with significant value placed on the user experience, design and ease of use (believe me, this is important to the modern workforce comprised increasingly of Millennials);
by weighting the value one places on “one-throat-to-choke all-in-one solution” versus a “best-of-breed” integrated system.
Decisions *should not* be made:
by listening to a salesperson with outdated market knowledge;
on historical separations between market segments or historical technical limitations of desktop SME solutions;
Based on the misnomer that price equates proportionally to features and functions or value delivered;
On the belief that a perfect solution exists.
And for what it is worth, the two key reasons to look at ERP over the likes of Xero and QBO + add ons are:
Multi and inter-entity management and processing;
The desire to have Finance and CRM on one platform.
This is an edited version of an article that originally appeared on Value Adders.