After an eight-year wait, Xero is now finally integrating with Karbon. Accounting firms can now sync their contacts in Xero Practice Manager with Karbon, removing one of the major objections for Xero firms considering Karbon.
The announcement comes at a crucial time in practice management. The past 12 months have witnessed a number of major changes:
- Reckon sold APS to the Access Group, a global software aggregator that has bought up dozens of applications used by accounting firms and businesses.
- The Access Group also acquired Sage Handisoft and Sage Handisoft Cloud, its replacement built on top of the CRM Salesforce.com.
- MYOB bought the Australian rights to GreatSoft, a cloud-based suite from South Africa, whose founder and CEO previously was part of Solution 6, the forerunner to MYOB Accountants Enterprise.
- MYOB launched MYOB Advanced Professional Services for larger accounting firms, based on its mid-market ERP, MYOB Advanced.
- Last week Xero announced it was selling the WorkflowMax brand, the software that provided the codebase for Xero Practice Manager, to Melbourne accounting firm BlueRock. (NB: Xero is retaining the codebase and development team for Xero Practice Manager.)
Most notable was that the two incumbents, Access Group and MYOB, had decided to build practice management software on top of CRM and ERP platforms. It raised questions about whether software companies thought there was still a profitable market for creating software from scratch dedicated to the accounting profession.
Karbon is one of a handful of tried and tested cloud practice management applications built specifically for accounting firms. It has raised a total of US$92 million over the years and amassed a large customer base in the US as well as the UK.
The lack of a Xero integration undoubtedly restricted its growth in Australia and New Zealand. But now that Karbon has come in from the cold – at a very opportune time – that could change.
Australian managing director Jared Baker agreed to an interview about the announcement of the Karbon and Xero integration on the condition that we didn’t discuss past history between the two companies.
The interview has been edited for length and clarity.
DigitalFirst.com: So, eight years. Why the change of heart?
Jared Baker: We're very focused on what the needs are now for customers to choose the right stack for them and being very open. Just as Xero has been, throughout its history, an open platform where anybody can integrate and provide the tech stack that their customers want.
DigitalFirst.com: How has Karbon fared in the past eight years?
Baker: Karbon launched in the US and has been really successful over there. For the size of the business it has penetrated that market significantly. And it really hasn’t invested too strongly in Australia or EMEA in that time.
Things started to really accelerate a couple of years ago where the team got some investment from some of the biggest players in the market – Tidemark, Five Elms and Blackbird.
That confidence from investors who are well known for backing SaaS businesses that can be market leaders in their vertical was a great endorsement of the team. In just the last year Karbon released 52 new products and feature enhancements and is shipping every three weeks.
DigitalFirst.com: What is Karbon working on right now?
Baker: There's been a bit of a pivot in the last six months to really focus on billing and payments. We're in beta with about 60 firms who are working with us on what that needs to look like.
DigitalFirst.com: Is that full time and billing that can replace the time and billing that they might use in say, APS?
Baker: So billing doesn't just get built and then it's done. Billing will be an ongoing piece because there's a lot to it. We've built it to win the clients that wouldn't come over to us without billing and payments. That's also been a deep investment of Karbon to solve that problem for our group of customers.
DigitalFirst.com: Do you have plans on the roadmap to build out job management similar to what XPM does?
Baker: We've publicly spoken about our track record over the last few years of shipping product. What we're doing in the next two quarters is all about billings and payments. The next piece for us is around integrations with more partners to be more accessible and easier to use.
We're not talking about elements of the roadmap that we will or won't do in the future. Of course, with our large engineering team, we could choose to build in one direction or another. But we also want to be smart not to try and cut the lunch of potential partners if they're going to be better at it or are so far ahead of us at it that it's going to be a sunk cost. And the more open we are, which we're being quite vocal about, about what we will build. We would look to build ourselves if we can't get a good partnership in place.
DigitalFirst.com: So what does the ideal app stack look like, based on Karbon, for a mid-sized Firm?
Baker: We've got clients that use XPM and Karbon. And we sit over it as the premium workflow management tool. There'll be elements that, like billing and payments, we can do more in time. You want the likes of Ignition or Go Proposal, BGL and Class, then you're starting to build out that full capability. But of course, it depends on the particular firm. As I've said to all the big players, we can work with anybody. We think that the accounting firm should be able to choose what's best for their particular workflow and what they want to do and plug it in on the go.
DigitalFirst.com: And so just to understand with Xero Practice Manager, is a contact sync the full extent of the integration? What opportunities are there to integrate other data points, and what are they likely to be?
Baker: At this time I can only speak to what we've agreed to do. And that first step is a huge step, as you know. And there's a lot of excitement in the market around it. It's a process of seeing how our customers, our mutual customers, experience the interaction between the two, and then build from there.
DigitalFirst.com: What is the feature overlap between you guys and FYI? FYI has had very good access to Xero’s development teams. Are firms using you and FYI in combination or is it competitive?
Baker: We love Xero, we love FYI Docs, we love SuiteFiles. When you look at billing and payments and document management, we go a little bit into all of those now and coming soon. But we don't have plans to become the premium solution in document management or the premium solution in other elements of practice management, but we want to be able to do it all. We’re the best in market at workflow. So we're open to working with best-in-class market so that customers can choose and not be forced to use a stack they wouldn’t want to.
DigitalFirst.com: What percentage of Karbon customers in Australia are also using FYI? Is that a growing or decreasing combination?
Baker: I would see it as a growing combination, but I couldn't give you exact numbers. I think with the Xero integration there's an inevitable and likely growth of both SuiteFiles and FYI, because just the fact that we're all integrated makes life easier for firms who want to choose those combinations.
DigitalFirst.com: Adding Xero integration makes Karbon much more attractive to any firm that's running Xero Practice Manager. And Australia obviously has a very high percentage of Xero firms. So does this current announcement change your investment in sales and support for Australia versus the US market?
Baker: So Karbon has made a decision to invest in this region already. And we're well placed to support it.
DigitalFirst.com: More investment than it has in the past?
Baker: Yet, so it's a step change in focus and our ability to serve clients in this region. We are well placed to take on and serve that extra demand that we're expecting. We also think the integration helps our mutual clients, but it also shows Xero is working with the best-in-class practice management product in market. And that helps Xero’s halo of being an innovator in the best solution to use if you're looking to leave APS or MYOB.
DigitalFirst.com: What sized firms is Karbon best suited to?
Baker: In the six months I've been at Karbon the average seat size of firms has gone up hugely. We've got a lot of three to five seaters but we've got several in the 400+ seat size now globally. And plenty in the 100 to 200 seat space as well.
Five to 100 seats is still our absolute sweet spot, but bigger firms come to us and we're winning clients and getting endorsements in that much larger space.
The thing is the time's right. The macroeconomic environment is pretty dire. Accountants are never more in demand than when times are tough and you need to manage your cash flow. There aren't enough graduates to replace people leaving the industry so digitisation, productivity and efficiency tools become absolutely critical to service demand.
We feel really confident that this is a breakthrough year in the industry.
Correction: An earlier version of this story said that Karbon was in the Xero App store. Karbon is not yet in the Xero App Store.