How many businesses use a cluster of accounting files to run multiple entities? It has to be a very big number. Neither Xero, QuickBooks nor Sage have a strong answer for managing more than one file.
The typical response is either to throw people at the problem – which leads to a lot of manual work – or to pick up the ERP sledgehammer with its associated cost, risk and complexity.
A new software company, Translucent, is hoping it will be the answer for multi-entity businesses that prefer to stick with accounting software. Its founder, Michael Wood, was a co-founder of London-based Receipt Bank (now Dext), one of the earliest accounts payable platforms in the Xero ecosystem. Receipt Bank quickly amassed a global following to become the largest Xero add-on and in 2021 sold to software fund Hg Capital for “several hundred million pounds” (the exact price wasn’t disclosed).
Not only does Wood have a formidable track record, he has attracted a list of angel investors that includes some of the biggest names in the Xero ecosystem. Such as the founders of Ignition, Karbon, HubDoc, GoCardless, Jeeves, Libeo, ComplyAdvantage, and KashFlow – and Xero’s co-founder and CTO, Craig Walker, and former managing director of Xero UK, Gary Turner. An impressive list.
The interview begins with Wood reflecting on the successes and missed opportunities at Receipt Bank. If you’re here just for the multi-entity, jump straight to the background on Translucent.
DigitalFirst: I'm keen to hear your story. It came out of nowhere. What's going on?
Michael Wood: I stepped back as an executive of Receipt Bank at the end of 2017, and that was basically being completely exhausted. Just absolutely... After seven years of crisscrossing the world, building, driving... Suddenly it sort of hit me, I was completely exhausted.
So I stepped back in 2017 and was on the board till we sold the business at the end of 2021.
DigitalFirst: Congratulations. I heard the price was okay. Were you happy with it?
Wood: Yes, no – well, the thing with Receipt Bank, we almost got some things right, and some things wrong. And the thing we got completely wrong from day one, and we never ever caught up, was we never realised how big the opportunity was. We never, ever, crossed that.
DigitalFirst: What does that mean?
Wood: When we started, we thought we were launching a UK service for UK clients. Then the phone started to ring from Australia and NZ, and it was like, Okay, well, let's open up there. But even then, there wasn't that aggressive [strategy], this is a global need. What does it mean for South America? What does it mean for Asia [Pacific]? If this is a global requirement, what does that look like?
We did a series A in around 2014 but we never really built a C suite then when we should have built it. To say, we're now building a team to take us from let's say three mil ARR to 30 or 50. And then, what's the team that takes us to 100?
We always ran the business – to say on the backfoot would be wrong, but probably a bit too tactically. Where does the next 12 months of growth come from rather than what does the business look like in 10 years' time?
So the result we got was in some ways, just fantastic. It was way more than I ever – more than we ever set out for on the journey. It was great that early employees were able to do really well. Obviously everyone got a check, which was nice. But equally – there was a huge play there. And the fact that Pleo and other cards have come in, those were ideas we were discussing in 2015. That's obviously the next step.
DigitalFirst: You said Pleo?
Wood: Yeah, to do payments, to do cards, all this kind of stuff. There's obviously a lot of big companies that have come out. I wouldn't say we'd have ever become an Airwallex. But, you know, a Payhawk or Pleo, Spendesk. All those guys came into a space that, frankly, if we had been more on it, we'd have been the market leader today,
DigitalFirst: Knowing what you do now, what are the three things you would have done differently?
Wood: Assume success. There's definitely that conservatism to Brits. You do lots of plans for, oh, what if it doesn't go so well? Maybe we shouldn't hire as much.
But you don't tend to do those plans for what if it goes twice as well as we expect? Who are we hiring then? What are we doing then?
I don't mean “assume success”, that would be a complete car crash, but definitely a bit more planning for success.
Something I did get quite good at at the end was just stepping back and reading and speaking to people. And I do think a leader or a manager who spends all their time in the business will be bad at their job. Warren Buffett says he spends 80% of his time reading (and thinking).
As a leader you should be out there speaking to other people, reading, and be a source of new ideas. I did get better at that towards the end, which helped us.
Receipt Bank was a funny business; we were by far the biggest Xero add on. And yet, we still thought of the other add-ons as our peers rather than thinking, Oh, we're something different. We were not Xero, we're still 5 or 10 percent of their revenue. But we were probably 5x the revenue of the next biggest Xero add-on. So what does that mean?
We accepted our place in the world a little too blindly and a little too faithfully, as opposed to being a bit more aggressive, a bit more curious about where am I?
DigitalFirst: What else would you have done differently?
Wood: Aggressive hiring. We didn't hire a C suite that challenges us and challenges the business. I have applied it to Translucent from day one. We didn't need to raise money, but we did raise money to bring in some strong people from the very beginning.
So you have that extra capacity for hiring, for leadership, for planning, for everything. Aggressive hiring doesn't mean hiring more people. It means hiring people of a seniority or experience that feel a little uncomfortable for your business.
You're sort of thinking, “Oh, it's little old us,” and these people will challenge that and see the business more truly than you might as a founder. Because as a founder, you might be seeing your business three years ahead of where it is. But you can also be seeing it two years behind.
DigitalFirst: You also mentioned international expansion? I would assume that you would want to create success in one area like say Xero with Australia, New Zealand, create a massive base there and then start internationally?
Wood: I would slightly challenge that. Let's say from 2006 to 2010 was Xero finding its feet. From 2010 to about 2017 Xero had a beautiful layering of S curves. They were really in control of, New Zealand is three quarters of the way up the S curve, Australia's a third the way up the S curve, the UK is 10 percent of the S curve.
Investing in the stock story was so clear. “This is the Xero S curve in a country; it takes us basically a decade to conquer a country. But we'll keep placing new bets on the board. And each one is going up the S curve in a way you'd expect. The reason we're going to keep growing is because we've entered this next country, and now it is in Singapore and Hong Kong and South Africa. And that's the TAM in that country.” There's a beautiful, textbook layering of S curves for growth.
That was never quite right for Receipt Bank because when we launched in 2010 we were so dependent on cloud accounting penetration. We had a board meeting, I think it was late 2011, early 2012, and I said, “We need to open an office in Australia.” I almost got laughed out of the board meeting. “Michael, what are you talking about?” Our monthly recurring revenue would have been less than 10,000 pounds – it might have been 3,000 pounds.
It was nothing.
DigitalFirst: Why were you so certain?
Wood: Because that's where the penetration was. That was the Carnegie Hall, the Bernebau. That was where everyone was. In the UK at the time, let's say there were 25,000 SMBs in cloud accounting. And in Australia, there's probably 250,000, you know it's 10x. And we were getting phone calls, and the phone calls were so different. That was absolutely the right thing to do. And it was key to our success that we would just be where the market demand was.
At the time we had competitors in the UK and in Australia. And it was our global strategy that then was a huge part in us winning. Because if anyone ever popped up on a forum and said, well, who should I use? We would always have way more supporters. "You obviously use Receipt Bank.” We'd have people in the UK chiming in, people in Australia, people in North America. And competitors that hadn't done that globalisation thing instantly looked like a small fish.
The Translucent origin story
DigitalFirst: So you get out of Receipt Bank, you finally sell to Hg Capital and make your money. And then you wake up one day and say, You know what? I need to do it all again. What went through your mind?
Wood: So around 2015 we had six Receipt Bank entities around the world. And I think they were all on Xero, maybe France was on QBO. And we saw firsthand – Xero is not designed for multi-entity businesses. And that's not criticism; there is neither a single line on their website or line in their code that says we handle multi-entities. Everyone who's running it for multi-entity is effectively running a hack.
Our CFO said, “We should move to NetSuite.” But the NetSuite pitch was a really odd pitch for the board. Because a sales manager in the US is saying, “If you give me 200 grand, I will give you back this (in revenue)” or R&D will say, “I'll give you this feature that will unlock this market”. And NetSuite was going to tie up the finance team for six months, the migration is a minimum six months, we'll have to run duplicate finance systems for at least a quarter, we will have to hire people into the finance team that have driven NetSuite before. And frankly, there is no upside beyond the fact that what we're doing will break. We’ve got to stop this, because running multiple Xeros is slowing us down and will break.
And so at the time, I saw that that's an interesting problem. Xero is fantastic at what it does, and yes if you're IPOing obviously you need to move to NetSuite or an ERP. But there's an awful lot of businesses that are multi-entity that are never going to IPO.
I was speaking to a lot of other businesses in London that were going through the same thing. “We're outgrowing Xero (and outgrowing always meant we're multi-entity) and we don't want to move to NetSuite. What do we do?”
Over the years I've been chatting to people, entrepreneurs looking for a new idea. I'd be like, “Oh, here's a billion dollar idea.” I tried to give it away again and again, but no one ever bet.
Then, about 18 months ago, a company (in which) I'm an angel investor phoned me up. “Two of our clients are having this problem.” And they described exactly the multi-entity problem. And there was something about just hearing someone new describe it to me, in their own language, unprompted.
It was like, “You know what, I'm going to go and do this.” And so, yeah, that was that.
DigitalFirst: I’ve been writing and researching a lot on ERPs. They have become much easier to use and much cheaper since moving to the cloud. The base sticker price for Microsoft Business Central is somewhere around $7,000 in Australia, before customisation. If I were an investor, the thing running through my mind is that the next 20 years of ERP are not going to look like the past 20 years of ERP. So how big is the TAM (total addressable market) for multi-entities that don’t want to go to ERP?
Wood: The question of the TAM is a fascinating one because no one knows the number. Literally no one knows the number. Xero doesn't know how many businesses are running multi-entity on Xero. In the UK, Companies House doesn't know how many companies are running French subsidiaries or whatever. So there isn't a number.
But every feeling I get is that it's way bigger than people realise.
There are two stages for me on this journey. When I thought I'm going to do this, I phoned up a lot of people who, I'm very pleased to say, became investors, people like Craig (Walker, CTO) and Gary (Turner, former UK MD) at Xero, like Jamie (one of the two founders, both called Jamie) at HubDoc, people like Guy (Pearson, founder CEO) at Ignition, and people like Stewie (McLeod, co-founder and former CEO) at Karbon. It was unanimous. Everyone coming back is 100% (behind the idea).
So the use cases are things like, we’re a property company where each property has to be a standalone entity because it has debt against it. So we might have 10 or 20 properties. We're not an incredibly sophisticated business. We don't need a tonne of things (in our accounting software).
We see things like TV production companies. Every TV production company, every production is an SPV (special purpose vehicle). So they might be running 40, 50 entities.
And you see things like chains of wedding venues that run five venues. You might see a design agency that has done M&A and bought another one. So there's just this very, very large number of businesses that don't think of themselves as sophisticated and don't run sophisticated processes. If NetSuite got on the phone to them, they would run a mile. They are not looking at us and saying, oh, it's Translucent or NetSuite.
What they're looking at is, they know they're struggling, and they have two or three workflows they want to fix. And that's why we're building this as a multi-app. We talk very explicitly of app one, app two, app three. You actually can just talk about, I just want my end of month consolidation, or I just want to deal with my intercompany reconciliations. I just want to integrate all the copy of my data in Excel. We're just solving single workflows.
You mentioned treasury management. It's funny; we've never been asked for treasury management, but for every use case someone with your sophistication would think of, we've been asked for a more simple version.
So what we have been asked for is, "Michael, I'm not interested in moving money around. But please can you give me a dashboard of all my bank accounts for all my entities, so I have one number, I can see them by entity, I can see them by currency but I just basically want a table so that I can see my cash position. And of course, if you can provide some extra sophistication – great. But I'm not asking you for payments and movements of money.”
You know Airwallex? There's lots of good services around that (including treasury). But the workflow they're coming to us for is always the simple one.
So the reason we started with search (as the first app in Translucent is because) the number of CFOs that came and said, I just want to see yesterday's invoices. I've got five entities and I'm having to go, CSV download, CSV download, CSV download, just to see what happened yesterday.
DigitalFirst: How do you describe Translucent? If you say well it does consolidated reporting, do you call it a reporting tool? What's the category?
Wood: If I spoke to you Q4 last year I would have completely mangled this. I struggled. And in the team, we went over and over, how would you describe this? And it was something like February, I remember where I was sitting, in which meeting room, when it suddenly came to me. We had all these sentences around multi-entity, you know, we do X for multi-entity businesses.
What if we took away all the extraneous words, and just said, “Multi-entity”? And that is all we say. Then our customers instantly identify themselves.
So we are there for you for multi-entity Xero, multi-entity QBO, multi-entity Penny Lane – whatever it is, we are multi-entity, and that's it.
We don't try to be more prescriptive. We definitely don't say, switch off NetSuite and come back to Xero, we can solve everything. We don't say we're a reporting tool, because you'll see with many of the apps we're launching they are writing to Xero.
DigitalFirst: The way you described it, I'd probably stick it in a financial workflows category, because I wouldn't know what else to do with it.
Wood: The business that we're most inspired by is rippling in the US. Oh, yes. Yeah. So we, you know, Rippling obviously are, you know, they say Parker (Conrad, CEO of) Rippling coined the phrase "compound startup". When I first heard that, I was like, really? You do software!
But actually, the more you dig into what they do and have done, and the more you try and build it like we are, there is something new in a compound startup.
DigitalFirst: Just define that for me?
Wood: So what you're doing is from day one for the same client we are going to launch multiple apps to solve problem after problem after problem. Because we've already built components over there and API calls over there, to build app two will be faster than app one, app three will be faster – you can use the compounding in an internal building sense of, “Our ability to solve new problems for this client compounds”. Because we're not building them as discrete apps without any thought of the future. We've got a roadmap of 30 apps.
So we're constantly thinking, Okay, that date picker is a component that we know we're going to need again over there. So therefore it has to be built in a different way so it goes into the component library. It speeds our ability to build apps three, six, and seven.
So you're building in a way that assumes this sort of future. You can also say there's a huge compounding for the client because you're solving more and more problems. Ones that are incrementally less cost per head without the UX overload, etc.
The reason I'm so excited about the compound startup model is we see every time we speak to clients this immense frustration with the status quo of the number of vendors. Everyone is fed up with the number of vendors, and what Rippling has shown is the power of saying, no, no, you can do everything you want to do here.
And so one of the powers we have as a compound startup – if I pick on something like credit control. There are perfectly good credit control apps out there, as you and I know. Debtor Daddy is 14 years old, it's not new.
DigitalFirst: Granddaddy. Yeah.
Wood: Exactly. But because SMB accounting software is geographically fragmented it means that the credit control apps are geographically fragmented. So you have this insane situation now where, let's say you're in Australia, Germany, France, and the UK, you will have at least three credit control apps despite the fact there is nothing geographically specific about credit control.
And so the way we think about it ourselves is our first problem we're solving for our clients is, we will give you a single financial system of record, because we know you don't have that because of your multi-entity situation. The second problem we will solve is we will give you a global app stack. So whatever you're wanting to do, because we've given you the single system of record, we will build apps. And even if we have nothing interesting to say in credit control, the fact that we can give it to you so that it works in Germany, in France, in the UK, is persuasive.
Translucent’s first batch of apps
DigitalFirst: So let's talk about the apps you've released, the roadmap, the timing. How did you pick the ones that you started with?
Wood: Sure. So search was, frankly, an easy, almost proof of concept. It wasn't difficult to build. And obviously we knew there's quite a lot of frustrations out there about the search functionalities in SMB accounting solutions. Search is never going to be top of the dev list (for accounting software companies). There's always going to be a tax change in the UK, or a payroll requirement in Australia or something like that. We knew search was an area of high frustration, and it was an easy way to sort of prove, okay, can we bring together the dataset of multiple entities in one place.
Group reporting, our second app, is table stakes. That is what people want – they want to see everything in one place.
DigitalFirst: Search is out, Group reporting is in beta?
Wood: Search is out, group reporting is in beta, it's in a good state. Now, the big change we're making over the next few weeks is our chart of account mapping. The V1 chart of account mapping I'm not happy with. It works well enough if you're five entities, but we've got users with 50 entities, 100 entities, etc. And our chart of account mapping wasn't good enough. So we're overhauling that so you could have 200 entities and Translucent will still work beautifully. And you can do chart of accounts mapping incredibly quickly.
There's obviously some more we can do with FX (foreign exchange). FX is always a big, big piece there. We've got some good FX functionality, but there's more as well.
Live Sheets (syncing data with Google Sheets) was a sensible one to do third because a lot of people are doing things like FP&A (financial planning and analysis) in Excel. And for us to do an FP&A app would take us a long time.
So it isn't just FP&A, of course, lots of people have different workflows in Excel. It made sense for us to say, we can give ourselves compatibility with a number of workflows you're doing today.
DigitalFirst: Live Sheets works with Excel? Or Google Sheets?
Wood: Google Sheets. Excel will be next. By the end of September we should have the first users in Google Sheets, and then Excel will come thereafter.
The next one is intercompany journal creation. That's writing back to Xero and QBO, etc. And that made sense. We haven't definitively said what comes next. But I wouldn't be surprised if it was bank consolidation.
DigitalFirst: Do you have rough timelines for those last two?
Wood: Intercompany will be by Christmas. We expect to launch an app a quarter. We could probably run faster than that. But there becomes a point, is it helpful to your users in the market to do more than an app a quarter? Or do you just become a confusing blizzard? Whereas one a quarter feels like a strong cadence.
We're doing advanced permissions. If you're a more serious business, you get very frustrated with the permission set on Xero. And again, it's not a criticism of Xero; the Xero permission structure is sensible for the ICP (ideal customer profile) of Xero. But if you are running multi-entity you want a more advanced permission set. So there's lots of features we're working on that aren't explicitly an app, but are in high demand from our users.
DigitalFirst: So let's just go back to the angel investors. It's a string of companies that everyone in the Xero ecosystem knows really well. Why did you pick those guys? Because they are friends or was there a bigger reason?
Wood: It was actually slightly the other way around. So Receipt Bank was a good financial success. Originally, I set out thinking well I'm going to fund the first couple of rounds myself. And what happened was, I reached out to these people for validation, and people said, “Yes, Mike, we think this (problem) is there and we'd love to invest.”
And I was like, “Yes, of course, this makes sense”. And to be frank, Sholto, it's been 13 years since I started a company. So it's probably quite good to have some experts who are a bit closer to what's happening nowadays. And that's been a great decision.
DigitalFirst: I wondered whether there was some master strategy there. Obviously, all these companies have strong bases among the accounting firms. Is that part of the distribution channel? What are your plans, to go to SMEs or to go through accountants?
Wood: So, right now, we're definitely going after the SMBs, sort of one by one. And we've always had accountants reach out to us. We definitely will attend things like Xerocon. It'd be insane not to. You and I both know, even if you choose only one of those options, you need to do work on the other one.
We've had too much inbound from the accounting channel to ignore it. But right now we're definitely aiming at the CFO and the finance team of the SMB.
DigitalFirst: So you mentioned earlier, the beautiful stacking of S curves by Xero in its international strategy. Are you looking to stack beautiful S curves as well?
Wood: We're not, because the way we're multi-entity, we're not going to be able to think of geography in the way Xero did. Straightaway, if you look at our leads, they're global from day one. One of the challenges I've got, I've just recruited our first salesperson –
Wood: They're in London, just because that's where we are. But it's a great question. We're already looking at who for Sydney, and who for California. I don't want to be premature in the hire, but we talked earlier about planning for success. I think we will need a global network of salespeople long before we need a team in London. We will need to cater to that demand. So it's going to be slightly different for us being a bit more global from day one, and seeing what happens.
DigitalFirst: And just to wrap it up. You mentioned that at Receipt Bank you didn't have the 10 year vision, it was more tactical. Tell us – 10 years, Translucent, what's it look like?
Wood: So the best way to think about this data set is if we use very rough numbers, the SMB finances from 2010 to 2020 went from desktop to the cloud. And from 2020 to 2030, now that the data is fundamentally in the cloud, it does what always happens to all data in the cloud.
How is the data is networked? How does AI act on the data? In 2030 we're going to be able to look back and see that this dataset is very, very different.
I'm often speaking with CFOs and accountants about to what degree does finance and accounting software in 2023 need to integrate with Salesforce and HubSpot? Because those are leading indicators of the finance numbers. If you're sitting in a board meeting you might be looking at last month's numbers or last quarter’s numbers, but you should have the data set nowadays to have a hell of a steer on this month and this quarter. And that's the obligation of finance software nowadays to be incorporating other datasets like that.
DigitalFirst: I'm just interested that, if Receipt Bank sold for hundreds of millions, I would assume that your share would have been an eight or nine figure amount. Yet you’re saying, “I really want to go back and do that again.”
Wood: If I was in my 50s, I don't think I would have. I was thinking about – I could be in my 60s, and talking about how 20 years ago I sold my company. And by then, the SaaS business model will almost certainly have gone. I just felt I had to do something else. And there was maybe a laziness to come back and do what I know well.
Maybe I'll have a third act after and try something completely different. I'm fascinated by recycling and carbon capture. and maybe I'll do something next. Let's go beyond 60s – let's say I’m in my 80s, sitting in the retirement home, and I haven't done anything for the last 40 years…
DigitalFirst: Look at Jeff Bezos. He's taking selfies with Kardashian. That could be you.
Wood: In the All In podcast they were talking about Bezos running for president. Yeah, he's got his yacht and his L.A. girlfriend and stuff like that. But five years of that? Well, I don't know.
DigitalFirst: Rishi (Sunak) is not going to be around forever. The Labour Party needs you.
Wood: It’s a basket case.
DigitalFirst: Good luck. I hope it's a massive success with slightly less pain than doing Receipt Bank.