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Is the billable hour making a comeback? · The Accounting Podcast

• Blake Oliver: In a big firm, since every engagement has to be profitable, they're trying to maximize profitability on every engagement. The firm spends a lot of energy and time on getting those really big, profitable engagements and doesn't want the small ones, which might be bookkeeping a lot of the time. What they fail to see is that even though bookkeeping may have a very low margin, having the client talking to you every month gives you many, many opportunities to upsell additional services. Welcome [00:00:30] to The Cloud Accounting Podcast. I'm Blake Oliver- David Leary: And I'm David Leary. Happy Thanksgiving weekend! Blake Oliver: Happy Thanksgiving to you, David. Did you go out shopping for Black Friday? David Leary: No, I did not do that ... I'm at a stage in my life where we have everything we need. Blake Oliver: So, are you a Cyber-Monday shopper, or are you just not shopping that much? David Leary: Even that, we've cut back on that, too. Blake Oliver: Okay. David Leary: I used to be very into that Cyber Monday thing. Blake Oliver: Well, when we get into the news, I have a story about Amazon, which is [00:01:00] super-relevant to Cyber-Monday shoppers, of course, and, I think, something interesting about their business strategy that I found a way to apply to accounting firms and how they think. David Leary: None of my articles relate back to Thanksgiving weekend, unfortunately. Blake Oliver: Well, you tweeted at like 5:00 in the morning ... David Leary: I did tweet on Thanksgiving morning ... I did tweet on Thanksgiving morning ... Blake Oliver: You were tweeting about Gusto and Zenefits no longer being friends. David Leary: Yeah because I got the puppy ... My puppy likes to wake up at 4:30 [00:01:30] in the morning, so I have to go outside ... It's a nightmare right now. It's just puppies, man. That's how it is. So, I'm out there, and I'm just kinda scrolling through the news, you know, preparing for the podcast, and I see this article about Gusto and Zenefits. I almost forgot about that this happened. Scott Orn, who was on the podcast probably almost over a year ago ... He's with Kruze Consulting. He actually has his own podcast called Startups with Friends? Blake Oliver: No, Founders & Friends. David Leary: Founders & Friends ... He released a special [00:02:00] episode last week some time, and he was talking about the impact that Gusto and Zenefits are gonna have because they're not- their APIs aren't tying back together; they're not talking to each other. This goes back to what we talked about two weeks ago, or whenever; I think I posed that question - what happens when these companies stop working together? What happens? Blake Oliver: Yeah, what happens when, for business reasons, somebody decides to shut off their API and no longer connect with a certain payroll provider, or general [00:02:30] ledger, or whatever? David Leary: Yeah, and I posed it like what if it's at a bigger platform- accounting-platform level and its exclusivity with apps- Blake Oliver: What was the reason that you originally said that? I can't even remember. David Leary: We were talking about the streaming wars. Blake Oliver: Oh, right, right, right ... David Leary: Because Netflix lost all the Disney movies ... All the other streaming companies now lost all the Disney movies; all the Marvel movies, because it's exclusive, and now- Blake Oliver: Nobody's sharing their content anymore. They're all building their own services. David Leary: Now, I think if you wanna watch the Martin Scorsese movies, they're [00:03:00] all only on Netflix, right? Blake Oliver: Right. David Leary: It's that game of being exclusive. So, we were talking about this, like what happens? Well, then, of course, served up on a platter, here's two apps that have turned off ... The APIs are no longer talking to each other. Blake Oliver: It's almost like you somehow had advance notice of this or- David Leary: No, I did not. Blake Oliver: -you must've just been like feeling the energy in the space. David Leary: Well, things go ... Pendulums swing, right? Blake Oliver: Yeah. David Leary: I think we had a big swing towards open APIs, and now, are [00:03:30] we seeing it swing the other way? I don't know. I think this could be an example, an argument, of, yes, it's swinging the other way. Yeah, so I tweeted out, essentially, at 5:00 a.m., after I read the article. The article was in Accounting Today, and the title of the article is- Blake Oliver: "Gusto and Zenefits Abruptly End Key Integrations. Customers Scramble." David Leary: So, I read this article, and it's customer focused. I'll skip right to Scott Orn. He actually is quoted in the article. Scott Orn, he's the chief operating officer of Kruze Consulting. They basically do accounting and [00:04:00] HR services for over 200 startups. Blake Oliver: VCFO, as well, they're like, yeah, the full stack. Great example of a modern accounting firm serving mostly startups in the Bay Area. They're in San Francisco. David Leary: He calls them out in this article. He says, "We really like the people at both companies, but this is one example of not putting the customer first, and both companies have built their brand on a customer-first approach." Essentially- Blake Oliver: Yeah, let's talk about why this happened. What's [00:04:30] the what's the reason behind it? David Leary: I'll get into that. Essentially, the reason you might use both is, yes, about 80 percent of the features between both products probably overlap, but about 20 percent don't. You might be using 20 percent of Zenefits, and you might be using 100 percent of Gusto; or you might be using 20 percent Gusto and 100 percent of Zenefits, depending on what your needs are- Blake Oliver: If they had did not have an integration and were gonna build one today, it wouldn't happen because they overlap so much. They are [00:05:00] total heads-up competitors because they both offer payroll, and they both offer HR, but they didn't start that way. Originally, Gusto was payroll only and recently started adding HR, and benefits, and whatnot. A long time ago, Zenefits was only HR, compliance, benefits, and whatnot. They didn't offer any payroll. Am I right? David Leary: Maybe this is what got me so upset, right? I come from that open-ecosystem world. I launched both these apps on Intuit and QuickBooks. Intuit had a billion-dollar payroll [00:05:30] division and still let Zen Payroll, at the time - which is now Gusto - come on the platform. They let Zenefits come on the platform, even though they threatened that billion-dollar payroll division. It's about a more mature view, right? You can think about ADP/Paychex now sync and work with Intuit and vice versa; QuickBooks syncs with those. 15 years ago, a very immature view of the world was, "No, we don't care if they're a paying customer. They will pay that penalty and download that CSV file; import [00:06:00] it in every time, or manually do work." It's a very immature view of the ecosystem, and now, companies have a more mature view. Blake Oliver: Okay, let's save that debate for just a few moments from now [crosstalk] Let's read the statements from each of the developers. Which one do you wanna read? Do you wanna read Zenefits' or Gusto's? David Leary: Well, let me frame this up, first. Both of these statements, from Zenefits and Gusto, are from, "a spokesperson." As soon as I see things like that- it's not [00:06:30] a quote from some direct person maybe we're familiar with at those companies, it always feels like this is a legal game, or a negotiation game. Blake Oliver: It's PR. David Leary: It's a PR game, for sure. So, do you wanna read the Zenefits one? Blake Oliver: I'll read the Zenefits one. David Leary: Okay. Blake Oliver: "Zenefits still has an integration with Gusto for payroll. Gusto required that we modify our payroll integration using the latest version of their API, which does not support the same features as the current integration. Effective next month, joint customers who continue [00:07:00] to use Gusto for payroll will need to manually enter information the API does not support, such as banking and tax details." Now, you read the Gusto one. David Leary: "We asked Zenefits to update their practices for how they were using the integration because the approach they were using created risk of sensitive customer information falling into the wrong hands. Our request was for Zenefits to comply with our existing policies, which all of our partners do. None of this is the result of any new changes that Gusto has implemented. All of our external API documentation is public [00:07:30] at docs.Gusto.com. These security protocols exist in order to keep customer information secure and private. We believe that keeping customer information secure and private is, in fact, being customer-first." Blake Oliver: Okay, so ... May I tell you where I come down on this and why? David Leary: Yeah because I have a whole soapbox. I'm ready to get on it ... So, I'll let you go first. Blake Oliver: Here's how I see it. I see this as Gusto upgraded their API, which happens all the time, and they are requiring all of their partners to move to their 2.0, [00:08:00] or 3.0, or next version of their API, whatever that is, to be more secure. It sounds to me, from this article, like Zenefits declined to do that. They declined to put in the engineering effort to upgrade to the newer version of the API, and Gusto shut off the old one; Zenefits says, "All right, well, you know, now ... That's fine. Our customers will just have to manually import certain data into Gusto." To me, whose fault is that? It's not like Gusto [00:08:30] can go over to Zenefits and build their app for them, right? It's also not appropriate, if the old integration was less secure, to continue to maintain that. So, I come down on Gusto's side, here. David Leary: Yeah, and I ... Yes, that's probably what happened, but I went back to the Way-Way-Back Machine to look at Gusto's APIs, and as far as I could tell, they're very, very similar. They got rebranded and went from Zen Payroll to Gusto. There was a period of time when they were not taking any [00:09:00] more integrations publicly. You had to apply ... They turned their API from being open API to a private API. Blake Oliver: That's the way it is now, right? David Leary: That's the way it is now. Gusto doesn't have a developer site, as far as a developer's blog, or ... I didn't see any announcements of like, "Hey, we're deprecating on January 1, 2020; we are deprecating the use of old API 1.0 to ... Everybody has to switch to API v.1.2." Blake Oliver: Okay. David Leary: There's no communications [00:09:30] like that. Now, it doesn't mean it wasn't communicated through email ... There's just so much we don't have access to regarding this. But the things that Zenefits is saying they can't do, I don't see any documentation for the API either. So, I suspect that Zenefits maybe have had some sort of private-level access at one time- Blake Oliver: Oh, interesting ... David Leary: -and a different level of access that isn't public APIs. Somewhere along the line, they don't agree about the private access, and this is why they provided, "Hey, [00:10:00] it's all on our public APIs. Everybody else uses them." Blake Oliver: Oh, interesting ... David Leary: So, there's a disagreement [crosstalk] This is a public negotiation is what's happening here. Blake Oliver: Right, right ... David Leary: Ultimately, the person that suffers is the customer. If they wanted to fix this, both sides could come to the table and figure this out. There's no doubt; they are smart companies; they have plenty of bankroll/VC money to put engineering resources on this. So, this is a dance that's happening. Of course, it's gonna happen. They're competing with each other for [00:10:30] market share, which is fine. That's obvious. It's a dance that's happening. The timing of this, though, is kind of stupid. Scott Orn calls this out. Blake Oliver: End of the year, yeah. David Leary: It's the end of the year. It's so easy for people to switch payroll companies on January 1. Blake Oliver: So, if the integration doesn't work anymore, than that's a even better reason for people to switch from Zenefits to Gusto- David Leary: Or vice versa- Blake Oliver: -or vice versa- David Leary: Or switch to a third-party payroll product, right? Blake Oliver: Right. David Leary: Scott Orn calls that out in the article. I think he was talking about Rippling, or the [00:11:00] other- Justworks ... He was talking about other full-blown HR/payroll-type solutions. So, basically, what I just tweeted out was that this is an immature thing, and I'm embarrassed for both companies. They should figure it out because it just hurts their paying customers. It is circa 2006/2004 Intuit-ADP. The funny thing about this is Zenefits has already done this dance once [00:11:30] with ADP in 2015. ADP shut off all Zenefits' access, and they fought, and spouted, and got in a big argument, and blah, blah, blah, blah, blah ... The same way, publicly, like this. If you go to Zenefits' website, today, there's documentation on how to integrate ADP's products into Zenefits. They'll figure this out- Blake Oliver: Okay. Got it. David Leary: But Zenefits has done this dance before. Now, me being ... If you're coming from my side, I've had to deprecate APIs before, and when I've done that before, you've [00:12:00] had to communicate it. It's communicated in blog sites. It's communicated in email. You're emailing every single person you know at that company; you're cold-calling the company, sometimes, because they didn't open their emails. You do whatever you can do to communicate that that API is changing and that it's gonna be shut off, or deprecated. I imagine Zenefits is a big enough company, and Gusto's a big enough company that they had communications. It wasn't like, "Oh, this got into a spam folder somewhere, and nobody knew this was gonna happen ..." Then, really, the giveaway is two spokesmen, spokespersons, spoke on this ... That's [00:12:30] the dead giveaway - this is a public/PR/legal battle that's happening in public. Blake Oliver: Well, let's hope they sort it out. David Leary: That's the thing ... They'll figure it out and then, everybody'll win. Blake Oliver: Perhaps the spirit of the season will bring them together. David Leary: I mean, this could be even a bigger thing. Maybe they're gonna merge. Maybe there's discussions like that on the table. Maybe one's gonna buy the other one. Who knows? But this is totally a public-PR-facing battle out there [crosstalk] for them. Blake Oliver: Well, before [00:13:00] I get to my top story of the week, shall I read our latest review? David Leary: Oh, yeah, we almost skipped over that. Darn it. Blake Oliver: Yeah. David Leary: Thank you, sir! Blake Oliver: Yeah, we were talking about the breaking news; that was breaking news, so- David Leary: We got fired up. Blake Oliver: Yeah. David Leary: See, you get me on these soapbox tangents, and then I- Blake Oliver: No, it's good. David Leary: -go outta order of the show. Blake Oliver: There's no order to this show! It's not like there's structure here! David Leary: We have an outline. It says reviews, and then ... Blake Oliver: Yeah, but we can jump around. We can do whatever we want. This [00:13:30] is our show, right? David Leary: That's true, that's true- Blake Oliver: There we go- David Leary: -it is a podcast. Blake Oliver: All right, so reviews ... We got one review from cellymann: "David Leary and Blake Oliver are unboring. I had a recent conversation with a prospect about how the cloud-accounting space is, "cool," and fun. He laughed, but not in a good way. David and Blake bring the fun to cloud accounting. The "cool kids" of our industry listen to Cloud Accounting Podcast because not only do they bring us what's new and exciting to [00:14:00] the industry, but they actually make it interesting for people who don't find accounting interesting. A must-listen to any accounting professional hoping to build their practice around cutting edge accounting technology." That is from, we think, Brad Celmainis. Thank you, Brad, for that review! Now, let's talk about Amazon and what Amazon has to do with accounting. Black Friday was this past Friday. As we record this, Cyber Monday is tomorrow. So, there are lots of articles [00:14:30] these days about Amazon crushing traditional retail, as there are every year around the holiday season, because everyone wonders is brick-and-mortar retail going to survive another growing season of online shopping and declining season of in-store shopping? David Leary: Did you go shopping Friday morning? Blake Oliver: No way! My son really wanted to go to the mall because there's this amazing climbing structure for kids. We said, "Nope, sorry. Not gonna do it ..." David Leary: I was up in Phoenix, and I had to take [00:15:00] the puppy to a vet because the eye was ... A little eye problem or something. At 6:00 a.m., I was driving around to a vet; 6:30-7:00 a.m.. Phoenix had a bad rainstorm. I guess everybody in the West Coast has had this really bad rainstorm go through. There was not a lot of traffic on the roads for Phoenix. Blake Oliver: Wow, that's good. David Leary: I didn't swing by a bunch of malls and things, but ... Blake Oliver: Yeah. David Leary: It didn't have that frantic pace out there, that's for sure. Blake Oliver: So, instead of going to the mall, we went indoor miniature golfing, which you might wonder ... Why [00:15:30] would Los Angeles have anything indoor? It's because it actually gets really hot here. David Leary: We have that in Arizona, too. Yes [crosstalk] Blake Oliver: Yeah. It's dark miniature golfing, like neon, lit-up kinda stuff. Pretty cool. Anyway ... David Leary: Back to Amazon. Blake Oliver: Meanwhile, most people are shopping on Black Friday and Cyber Monday. So, there's this article I spotted in The New York Times called, "Chasing Amazon - Retailers are in a Neverending Arms Race." There was one bit here about Amazon that really [00:16:00] stuck out to me, in the context of accounting firms and how accounting firms think versus how Amazon thinks. I think we can all agree that Amazon is a very innovative company. It has disrupted a lot of traditional industries, all the way from cloud computing with their Amazon Web Services - which kinda dominates the cloud-computing space and pretty much every app in the cloud-accounting space runs on Amazon Web Services, I imagine; at least most of them - and, of course, their traditional Amazon Prime retail- well, not [00:16:30] traditional; un-traditional one-day shipping. Well, Amazon has made this big investment this year in one-day shipping, spending billions of dollars on increasing their logistics so that they don't have to rely on FedEx, and UPS, and the USPS. They can actually deliver packages themselves to the last mile. They can take the package from the warehouse in L.A., out in San Bernardino, to my house, same day. I will then buy more stuff because I can get stuff quicker. Studies [00:17:00] show that if you can get stuff quicker online, you're gonna buy more rather than going to a physical store. What's crazy about this is that if Amazon thought like a traditional accounting firm, Amazon Prime one-day shipping wouldn't exist. If accountants ran Amazon, it wouldn't exist. Why do I say that? Because, according to a Morgan Stanley analysis that's cited in this article in The New York Times, a typical order for one-day shipping is $8.32; [00:17:30] typical order - $8.32. Amazon spends $10.59 to fulfill and ship that order. So, the typical order is $8.32, and Amazon spends $10.59 to fill and ship it, meaning the company loses money on most of their sales for Amazon Prime one-day shipping. David Leary: Because if it was an accounting firm, I would calculate every single individual [00:18:00] item - if it's profitable or not to ship that one item. Blake Oliver: Right, and then you'd say, "Oh, it's not profitable ..." David Leary: So, I don't want any sales at all, and I would just never sell anything. Blake Oliver: Right. I would get rid of that line of business, and I would say, "Oh, I'm not gonna do one-day. I'll do two, or three, our four [crosstalk] David Leary: 10 days, because I'd be cheap. I'd be an accountant going from my ... I would do the cheapest way possible. It'll take 15- days shipping, zero customer service; nobody'll be happy about how long it took to ship ... Blake Oliver: Yeah. This is a classic example of how traditional cost accounting, which is what most traditional accounting firms use [00:18:30] for tracking profitability on engagements, and clients, and whatnot doesn't work. It doesn't make sense. Let me ask you this - why is Amazon doing this, David? Why would they lose money on all of these one-day shipping orders? What could possibly be the reason? David Leary: To keep me staying at home, right? Blake Oliver: Right. Not only are they crushing their competition this way, they're stealing orders from their competition and weakening them. They are also buying your loyalty. They may lose money on these one-day orders, but because [00:19:00] you're so happy with Prime One-Day, which now, in many cases, we get for free ... I'm a prime member. I get a lot of stuff one-day without having to pay any extra. It's just like included in my Prime membership, and more and more stuff every day gets added to that one-day free shipping. I can buy all the essentials I need and get it in one day. So, by default, I just go to Amazon, or better yet, I order on my smart speaker, my Alexa, and I just set it off ... Don't say anything, Alexa. David Leary: BUY! [00:19:30] Blake Oliver: Yeah. Good thing I'm wearing headphones. David can't order through the computer. David Leary: Oh ... I tried. I tried. Blake Oliver: He tried. Better yet, I order through my speaker and I'm not even price shopping at all. I'm just going to Amazon because they give me the best customer experience. They are not worried about losing money on these small orders because, with my loyalty, they make money on all the other orders that are not one-day Prime. David Leary: So, Amazon's using Prime [00:20:00] one-day delivery in the same way grocery stores use that rotisserie chicken. Blake Oliver: Yes. They don't make any money on the rotisserie chicken, but it gets you in the store, and then you buy other stuff where they make money. David Leary: Same thing. Blake Oliver: But it's also, I think, even bigger than that in that Amazon is spending all this money to build their own delivery fulfillment infrastructure for that last mile from the warehouse to your house. So, eventually, it will be profitable for them to bring you something [00:20:30] probably. David Leary: Well, they're building a distribution center in every major city. I mean, Tucson has a distribution center now. Every major city is getting one. Blake Oliver: Right, so they can do this. I think accounting firm should be thinking this way, too, which is don't look at individual orders. Don't look at individual tax returns, or individual engagements, and maybe don't even look at the whole client. Actually look at your firm, as a whole. Look at the firm because clients don't have costs. Engagements don't even have costs [00:21:00] because your cost is people and your people are paid salaries, and that is a firm-wide cost. That's not a cost that can be attributed to a specific client, even if you use elaborate cost methodology to track their hours and then allocate their hours. It's all just meaningless. Amazon doesn't do it because it doesn't make sense. So, be like Amazon, and it'll enable you to offer low-margin services ... This was always the struggle I had in a big firm, which is, [00:21:30] in a big firm, since every engagement has to be profitable, they're trying to maximize profitability on every engagement, the firm spends a lot of energy and time on getting those really big, profitable engagements and doesn't want the small ones, which might be bookkeeping a lot of the time. What they fail to see is that even though bookkeeping may have a very low margin, or none at all, or even lose money, having the client talking to you every month gives you many, many opportunities to upsell additional services- David Leary: True. That makes sense. [00:22:00] Blake Oliver: -which is the same thing Amazon's doing, right? David Leary: In a way, you'd wanna maybe ... I know a lot of people don't do payroll anymore, but it gives you an excuse, every week, to talk to somebody at that company, at that client, every single week- Blake Oliver: Right, and find out what's going on, and spot the growth. You see the payroll; you see who they're hiring; you know when they're growing, when they're successful ... If their payroll is expanding a lot, maybe it's time to go pay them a visit and see if you can get some consulting, which will give you great margins. That's a great example - don't [00:22:30] look at the trees. Look at the forest. This episode of The Cloud Accounting Podcast is sponsored by OnPay. Many times, when choosing a payroll service, you have to choose between a new startup with a great app, or an established company whose tech may feel a little behind the times. With OnPay, you get the best of both worlds - a great app from an established company that's been providing payroll for over 30 years in all 50 states. OnPay is an easy-to-use, full-service payroll with simple, straightforward pricing, and it includes all their features - employee self-onboarding, HR tools, health insurance, worker's comp tracking, and 401(k). With an accountant's dashboard and partner program combined with best-in-class integrations with Xero, and QuickBooks, OnPay is the right fit for all your clients, whether they have just one or 500 employees. They also handle all the complicated stuff that other payroll providers don't, like agricultural payrolls, including Form 943, multi-state payrolls, and employees with H-2A visas. I'm really excited to tell you that OnPay is offering an exclusive promo code only for the listeners of The Cloud Accounting Podcast to get three free months of OnPay payroll service for any of your clients that you set up by February of 2020. Head over to CloudAccountingPodcast.promo/onpay. That is Cloud Accounting Podcast dot promo forward slash O-N-P-A-Y, and use code "CAP3FREE," when you sign up your clients. That is C-A-P, the number 3, F-R-E-E. And to be clear, you cannot get this promo anywhere else. It's only available to the listeners of the Cloud Accounting Podcast. David Leary: I kinda have a related article that's maybe counter-intuitive to what you're saying, because you're basically telling people, "Hey, you can't hourly bill and track it all that way. It just doesn't work." Blake Oliver: Yeah. Don't try to maximize the profitability on every engagement. David Leary: Every engagement ... Calvin Wilder of SmartBooks ... I think we've talked about SmartBooks before. We've mentioned Calvin before, anyways. He [00:24:30] wrote a guest blog post on AccountingWEB this week, and the title of the article is, "How to Know When Fixed Fee Pricing Isn't Working." Blake Oliver: Hmm ... Yeah, tell Me More. David Leary: Yeah, it's a longer article, but it's worth reading. He lays out, basically, for the last 10 years of running SmartBooks, which is basically an accounting firm ... He's got a little bit more of engineering tech on it, so he's kind of a forerunner to these new business models we're seeing pop up everywhere. It's outsourced [00:25:00] bookkeeping, essentially, what he's doing for small businesses [crosstalk] Blake Oliver: -and they've been doing it for a long time, so they're in the cloud, and remotely, so they're a good case study. David Leary: Yeah. Then, they were using fixed-fee billing because they believed it was really predictable and something desired by clients. They really thought it could simplify their engagements and avoid friction. He kinda goes through reasons that it just never worked out as well as they thought it would in their head. He's talking about scope creep- [00:25:30] Blake Oliver: Here's a quote that really sticks out to me ... I'm just sort of browsing through the article right now with you, David. He says, "One would think that after working with hundreds of clients over a 10-year tenure, that we'd have sufficient ability to successfully price new clients. Unfortunately, that has not been the case. This failure has largely been driven by a few main factors." Then he gets into them. David Leary: Yeah, scope creep, employee burnout. Your employees can do so much work, but then eventually that higher volume, they burn out, and now you're having to possibly hire [00:26:00] a new employee and train new people. It just takes time to do that and then, you're not as efficient. That negative employee retention just adds up. Larger clients just erode the profitability on those fixed fees. Clients want flexibility. There's friction and misalignment. He goes on with all these problems that he ran into over his decade of doing this. The conclusion really, in the end, is now, his firm is actually offering fixed-fee pricing still, but they're actually offering the ability, if a client would like [00:26:30] to choose an open an honest ... I'm sorry, not open and honest ... Transparent hourly billing model. Blake Oliver: So they're not going away from fixed fee entirely, but they're gonna offer hourly billing again. David Leary: Yeah, they're gonna reintroduce hourly billing. Blake Oliver: I can't believe that going back to hourly billing is the right solution. One of the things he mentioned - employee burnout, and large clients eroding profitability - a lot of that happens when the employee incentives aren't aligned with the firm, with the fixed fees. If [00:27:00] you're paying employees hourly, but you're billing fixed fees, that can create a problem. Some firms are moving to incentive-based compensation for their employees so that it's based on the book of business that they're working on or a combination of those two. I don't know. Interesting ... Well, if you're skeptical- if you're listening, and you're skeptical of fixed fees, or worried that it might not work, then I guess this is an article to check out. David Leary: I could see where ... Let's just use QuickBooks Live as an example ... It's $200 a month. Maybe I'm a small [00:27:30] business owner. I'm just tip-toeing in the waters here. I've been paying 70 bucks for QuickBooks. Maybe I kind of think, "Oh, I probably have an hour a month of bookkeeping. Can't I just pay you for one hour, and pay you 45 bucks?" I could see where maybe clients maybe would try to ask for hourly billing, because the fixed fee ... They're not used to seeing fixed fee with professional services. Where else do I get to pay a fixed fee [crosstalk] Blake Oliver: Well, I think it's fine, actually, to offer both, but you [00:28:00] wanna make the hourly billing price less ... If the client does select hourly billing, they'd actually be better off with the fixed fee. They have to pay a penalty, essentially. They have to pay more if they want hourly billing is the idea. David Leary: Anyways, it's a long article. It's worth checking out. I find it just interesting that somebody, after 10 years of using the fixed fee, is like, "Maybe this is not working for us ..." This could be the problem of scaling services like this versus having [00:28:30] a lower number of ... A high volume ... This is all about scale, right? Blake Oliver: Right. David Leary: Versus small number of clients and value pricing. Then, he just also talks even about artificial intelligence. The scale never happened. This massive "Everybody's gonna lose their jobs. We don't need bookkeepers because artificial intelligence will do all the work and 80-90 percent of the work's just gonna go away." It hasn't ... If you had your fixed prices set on this bet that you were gonna get more, and more, and more efficient [00:29:00] because of AI, he's like, "It's just not there." It hasn't happened after a decade. Blake Oliver: Let's see ... What else do I have? I have something fun. A guy made a digital drum machine in an Excel spreadsheet. Do you wanna hear it? David Leary: Okay ... A guy, or somebody at a Big Four? Who has time for this? Who does this? Blake Oliver: Let's see. This was on Digg.com. So, I can't ... David Leary: Oh, you found this in 1997, I see. Digg.com ... Blake Oliver: It's just funny. I'll just play this for you. David Leary: So, when you say you're playing something, are you opening up a spreadsheet, or an Excel [00:29:30] sheet right now? [Feel the beat ...] Blake Oliver: So, this is a YouTube video of the Excel spreadsheet playing the beat ... Pretty good, right? Not bad. David Leary: So, you could download this spreadsheet if you'd like. Blake Oliver: I think so. It looks like it's using [00:30:00] macros or something. David Leary: All right, wrap that up. Blake Oliver: It goes on for like 13 minutes. David Leary: That's crazy. Crazy, crazy, crazy. Blake Oliver: So, the link will be in the show notes, if you wanna see the full video. David Leary: It sounds amazing. Blake gets very excited about this. Blake Oliver: You can do anything with Excel. David Leary: So, I got an easy, easy kinda fun one. Blake Oliver: Okay. David Leary: A new survey by Flex Jobs about the hottest side [00:30:30] hustles. What do you think the number-one side hustle is, right now, in America? Blake Oliver: Well, I know, because I tweeted this out. David Leary: Oh, I stole your article? Sorry ... Blake Oliver: Yeah, yeah. It was bookkeeping. David Leary: How is it not podcaster? Blake Oliver: I mean because bookkeepers make money and podcasters don't. David Leary: Okay, now I see ... Blake Oliver: On the whole. Although, David, how is our dinner fund from the merchandise sales going? We have enough to go out to tacos maybe? David Leary: We might be past that. I [00:31:00] think we're at $22 or something. Blake Oliver: Okay, so half a steak? David Leary: We could go to tacos in Tucson. We can't go to tacos in L.A.. That's where we're at. Blake Oliver: We could buy like two tacos in L.A., maybe; three tacos [crosstalk] Yeah, bookkeeper. I saw this. Bookkeeper is the number-one side gig, right? Or, what did they say? David Leary: Side hustle. Blake Oliver: Side hustle. Yeah. There was actually another accounting job on there, too, right? David Leary: I did find it funny that career coach was [00:31:30] number two because my theory is that there's more accounting career coaches than there are bookkeepers- Blake Oliver: Well, they'll coach you how to become a bookkeeper- David Leary: Exactly. There's a lot of those that are out there. Blake Oliver: So, that's why this is number one, and number two. That makes sense. Copy editor, consultant, curriculum writer ... Just going down the list [crosstalk] David Leary: NetSuite administrator ... Blake Oliver: NetSuite administrator, and they make an hourly rate of ... What was it there? David Leary: $70 an hour. Blake Oliver: That's pretty darned good, right? Senior accountant is on there, actually. I guess more, and more ... Enough firms [00:32:00] are offering part-time roles that you can be a part-time senior- David Leary: That's a side hustle? Blake Oliver: It can be a side hustle. Let's say you just do it in tax season. 45 bucks an hour, right there. So, where did this data come from? This came from Flex Jobs, okay ... Survey by Flex Jobs. So, if you wanna get out of bookkeeping, or accounting, you could look at executive assistant, graphic designer, lead-gen specialist, online instructor, photographer, project manager, recruiter, sign-language [00:32:30] interpreter ... Social media marketing specialist. David, there's a job for you! You're good at social media. David Leary: So, bookkeeper, that is the number-one side hustle. Blake Oliver: Number-one side hustle. That's why Intuit is building QuickBooks Live, if you ask me. There are not enough bookkeepers to fill the demand for that side hustle. I'm surprised Uber driver isn't on there. I guess they don't make enough money, right? David Leary: It's not hot. This is like the hot- Blake Oliver: The hot one. David Leary: This is the hot list ... Three years ago, I guess, everybody was becoming an Uber [00:33:00] driver, right? It was the hot thing. Two years from now, everybody's gonna be a bookkeeper. You'll go to parties ... "What do you do?" "I'm a bookkeeper." You go to the next person at the party. "What do you do?" "I'm a bookkeeper." It's gonna be amazing. Blake Oliver: Everybody's a bookkeeper ... David Leary: We need to figure out how to get them all to listen to the podcast? We need to ride this wave. Blake Oliver: We need to start an online bookkeeping company that will do bookkeeping for bookkeepers, because you don't have the time, as a busy bookkeeper, to do your own bookkeeping. I think this is a genius idea and we should raise money for it. So, actually, speaking [00:33:30] of raising money, I have a story about VCs, or a story from a VC. This is called, "Investing in the Cloud: From Gold Rush to Hunger Games and Beyond." It was a LinkedIn article posted by Rory O'Driscoll. He's a partner at Scale Venture Partners. It's a big overview of where he sees cloud going, from the standpoint of an investor investing in cloud startups. David Leary: He has great graphs, or great PowerPoint slides in there. Blake Oliver: He starts [00:34:00] out with the current situation, which is that cloud-company valuations are at all-time highs and that cannot possibly be justified by improved company operating performance. But it does make sense, given 20 years of consistent 30-percent growth in the cloud-software market, which we have seen from Intuit, from Xero; even from Sage, when it comes to their cloud-computing division. They're all growing 30 percent; smaller companies often growing even faster. That's given investors the comfort to pay a lot of money because [00:34:30] when something's been happening for a long time, you think it's a sure thing. But, like any good investor, he says just because it has been happening doesn't mean it always will. He thinks that within the next two or three years, there's gonna be a growth crunch. So, cloud markets are saturating. You can't have 30-percent growth every year without, eventually, cloud eating up traditional software. That makes sense. Basically, cloud has been mostly about cloud-based apps eating up the business of on-premises apps. David Leary: Talking about the growth, this [00:35:00] goes ... One of the things we noticed with the Intuit numbers - it was the first time we haven't seen them say how many new units they moved [crosstalk] Blake Oliver: Of QuickBooks Online, yes, which makes you think maybe that the growth is slowing. So, what this investor, Rory O'Driscoll, is saying is that the gold rush will become the Hunger Games, at some point, because the cloud markets will saturate, and it will become cloud app versus cloud app rather than cloud app versus on-premises app. There's a few different [00:35:30] winning strategies, if you are a software company in the space, that you could use in the next few years, when this starts to happen. He thinks this could happen [crosstalk] David Leary: Turn of APIs for another app. Blake Oliver: Yeah, that could be one, right? David Leary: That could be one. Blake Oliver: That's going heads up, right? Going to battle. Fighting, going head on in the existing cloud market - that's Zenefits and Gusto going at each other. Or it's Xero and QBO really going hard at each other, which is kind of starting to happen. He thinks this can happen as soon as 2021. That's when the [00:36:00] majority of software revenues are gonna come from the cloud. In 2021, it will no longer be on-prem. Cloud will have won. The battle is already over, at that point, for cloud versus on-prem. Then, there's this question of cloud versus cloud. You can either fight ... You can focus; you can find the parts of the cloud market where there's still low competition and good growth - find the untapped resources - or, lastly, you can fly, which is build a company based on more than just the move to the cloud. That's like beyond the cloud. [00:36:30] What is that? Well, he calls this the 'Intelligent Connected World,' or ICW. What does it really mean? Well, he uses an example, which is very near and dear to our hearts, which is next-generation bookkeeping. This is the example at the end of the article for what companies could do, if they don't wanna fight or focus. If they wanna do something completely different, they could go after the market for next-generation AI-driven bookkeeping services for SMPs. These [00:37:00] kind of companies are not replacing the cloud provider. They are sitting on top of the cloud providers, such as QBO, and using AI and connectivity to replace a human bookkeeper with a service powered by a combination of AI and humans for a more cost-effective solution. The idea is that you skip fighting in the software battle, and you just go straight to some function that is being done by humans in the real world, and you automate that. That is where the true visionary [00:37:30] stuff is gonna happen, and that's where the big dollars are now. This is validation, I think, David, of the stuff we've been talking about - from the investor community. David Leary: Yeah. I was looking at that article, as well, and I thought his ... The one that really set it off for me was his grim realities of exponential math. It takes 19 years for SaaS, or a product, to get to 30-percent market share. But, two [00:38:00] years later, it hits 50 percent, and two years after that, 100 percent. Blake Oliver: Right. David Leary: That's where we're at in the curve, and if that's the case, where we're at, you probably don't wanna start a brand-new SaaS-based payroll company today, or a SaaS-based time-sheet company, or a SaaS-based anything. Blake Oliver: It's too late. It's all gonna be divided up by Gusto, and Zenefits, and OnPay, all these ... They're all gonna ... They are already positioned to dominate. David Leary: You've gotta build a new model, which is like what they're doing now. It's like people and SaaS together, [00:38:30] which, who knows what the new model will be two years from now, right? Blake Oliver: Right. David Leary: But you probably need to be ... You need to figure out what the next 10 or 15 years is, not what's the next four, because the next four is already done. Blake Oliver: The economics of going into real-world GDP and trying to automate what humans are doing makes a lot of sense because instead of ... Here's the example - instead of fighting over $500 per year versus QBO, you're going after $5,000 a year as a replacement for a $10,000-per-year old-school bookkeeping service. [00:39:00] David Leary: Interesting. Well, I'm surprised ... This guy's completely ... He's an investor, but he's outside our space [crosstalk] Blake Oliver: I don't know. Maybe he's invested in one of these apps, and that would make a lot of sense. David Leary: Yeah. We could work backwards and figure that out pretty easily because what these companies like to do is they like to brag about who invested in them, so we could easily work backwards and figure out who of the players [crosstalk] Blake Oliver: -I'm gonna do a Google search right now. "Scale Venture Partners and bookkeeping ..." David Leary: It would make sense if he invested in ScaleFactor because [00:39:30] ... Blake Oliver: They invested in Bill.com, Scale Venture Partners did. David Leary: Okay. This goes back to ... You know how we've talked about it before with QuickBooks Live, and the stance that Xero's taking of, "We're never gonna do anything like this ..."? This is another article that- you have to do it! You're going to have to do this. There's just no way ... Eventually, you're gonna have to do this. Anybody who thinks they're not is [crosstalk] Blake Oliver: Well, that's where the growth is. David Leary: Yeah. Blake Oliver: The growth opportunity is in automating human activity. [00:40:00] David Leary: If they were a private company, I would believe it, but they have shareholders. They have a fiduciary responsibility to keep growing- Blake Oliver: To maximize their growth, yeah. David Leary: That's a good find. It's cool that the examples he's giving is our industry. So, another acquisition from Sage. They acquired CakeHR - HR software. It ties into payroll - hiring new employees; the onboarding; all that type of stuff; handling raises ... Similar [00:40:30] to what Zenefits is offering; similar to what Gusto's offering now - a lot of the providers are doing it. They're only in, right now, the UK and Australia. That's it, right now, but, apparently, the way it's structured ... Reading the article, apparently, it's set up to scale very well to other regions and other countries. They just have not launched in other countries before. This is where it's a good pick-up for Sage, because Sage has Sage products in lots of different regions of the world. Blake Oliver: My [00:41:00] first question was gonna be - didn't they just make an acquisition and turn that into Sage People? But this is not for the same market. Sage People is more for the mid-market, and CakeHR is going to be for their small-business offering. David Leary: Exactly, and one of the articles actually calls that out. They're like, "Sage Accounting plus Sage Payroll plus Sage CakeHR is their small-business suite. Then, they have Sage Intacct, Sage Payroll, and Sage People, and that's their enterprise-level mid-market suite. They're building the exact same suite at two levels. The other thing that was news, I [00:41:30] think last week, and we didn't really pick it up on it, is they sold off theirs payments division. They had something called Sage Pay, and they sold that off to another company to focus in on this full stack. Blake Oliver: So, they're really focusing on the accounting plus HR plus ... What was the other thing? Oh, payroll. David Leary: Payroll. Blake Oliver: Gotcha. David Leary: Then that stacks nicely between the- with their business offering ... They have the same offering now for small business and the same offering for enterprise. Different products, but now they can start building up expertise. There's [00:42:00] probably things Sage CakeHR does that Sage People does and vice versa. They'll start to be able to pull features down and push features up. The other thing to call out here, and this ties back to the first thing we talked about, is CakeHR is an open API; so they connect to Sage Payroll, and they connect to other payroll products [crosstalk] Blake Oliver: Yes, but for how long? David Leary: Yes, exactly! Unfortunately, my gut tells me the pendulum's gonna swing to people moving a little bit away from open APIs in the short term [crosstalk] [00:42:30] Blake Oliver: Well, you know, it's funny- David Leary: -tells me that. Matt Paff kinda wrote about that, as well, and this article you just brought up about the- Blake Oliver: Yep. It's funny, at first, when you started talking about this weeks ago, maybe even months ago, I was very skeptical and thinking, "Oh, David is- David Leary: I'm nuts. Blake Oliver: -David is sounding the alarm. The sky is falling! It's all gonna ... No, it's not gonna happen ..." But this article, we just ... which is very persuasive, talking about how it's gonna become cloud versus cloud in [00:43:00] the next ... Gosh, it's what? It's turning 2020 in a month. So, we're talking in a year or two, we're gonna hit almost total saturation of the market because everybody's gonna move from on-prem to cloud. Well, then, if these cloud companies are going to battle with each other and then they're doing acquisitions, and they're creating their own suites, then, yeah, there is a possible incentive for foul play ... Not foul play, but just hardball. David Leary: Well, everybody's getting in each other's lanes. Bill.com and products that were just bill [00:43:30] payment, right? There's a stack of those apps, and they just did bill payment. But now, a lot of the credit card apps, the prepaid credit card guys, they're starting to do bill payment. I'm sure it's only a matter of time until Bill.com has an expense or a credit card app, right? Blake Oliver: Yeah. David Leary: So, they're getting in each other's lanes, and if they keep getting in each other's lanes, even though they used to work together, and they cooperated, they're gonna be competing now, more directly. It's only gonna be natural that not [00:44:00] everybody is gonna be cool, and kosher, and like, "Hey, man, we should have open APIs ..." Blake Oliver: Yeah. David Leary: This is a risk that's gonna happen. I think it's risky for accountants and bookkeepers, because how do you pick the right tech stack, now, if there's risk of you pick a solution that all the sudden gets closed down? Blake Oliver: Well, I think, if you are having to decide now, you try to pick a solution that isn't gonna get disrupted in the future or pick a stack that isn't going to be a problem. So, as much as [00:44:30] Xero says Hubdoc's always gonna be open and gonna work with QuickBooks, I would take that with a grain of salt. If you're on a QuickBooks ... If you've standardized on QuickBooks as your GL, maybe you don't wanna pick a competitor's product to do your OCR. I mean, that's the way to be safe about it. David Leary: Yeah, or you have to just run with multiple stacks [crosstalk] Blake Oliver: Yeah, which is ... It's impossible. I don't think you can scale a business that way, so you have to choose- David Leary: Shame on the industry. Please, please, industry - I know you're listening - do not head down this path. [00:45:00] It's bad for everybody. It's bad for you, I think, ultimately. Blake Oliver: Well, and I think that what you're saying is very noble and good, but, I mean, in the end, economics will dictate whether this happens or not. It's, you know, inevitable. David Leary: Yeah. We'll see. We'll see, for sure. Blake Oliver: We'll see. We'll keep following this. That's all I've got for this week. How about you, David? David Leary: Oh, a little update on banks! Remember, we talked about banks all this time, and all the tech companies trying to become banks? Well- Blake Oliver: We've been talking about that for a [00:45:30] while. David Leary: -and we even talked about how, last week or the week before, how Walmart gave up ... This story's been done before ... Well, Robinhood, which we've spoken about before, they have an online investing app, and they've been trying to pursue a bank charter. They gave up this week. They're just like, "We're not gonna try to become a bank anymore." They just gave up. Blake Oliver: Yeah, that doesn't surprise me. Everybody else has been failing. Why would they succeed? Also, we've covered them before, and I'm just searching our archives ... David Leary: Well, they jumped the gun on some banks trying to be a bank [00:46:00] before, and they kind of broke some rules? Blake Oliver: Yeah, okay ... Yeah, this does not surprise me at all. They launched their bank accounts before they even got approved to do it. This was bad ... They launched checking and savings accounts before they were even insured. David Leary: Yeah, so they were already on the radar [crosstalk] Blake Oliver: Yeah, there's no way. There's no way the regulators were gonna let them off of that and give them- David Leary: Yeah, because I think if you start on the naughty list, you [00:46:30] can't move over. Blake Oliver: Yeah. David Leary: You're in trouble, so [crosstalk] Blake Oliver: That was back in July. David Leary: Yeah, they gave up on that. I think we can save this one for next week, and we can deep-dive in it. There's a remote work report from Zapier. A little teaser for next week. Blake Oliver: Oh, yeah ... I've got a bunch of stories about remote work, so maybe we'll have a themed episode. We can just start with that. That'll be great. David Leary: Then, I had some notes ... There was an article about payday loan companies. We've talked about some of these before, and this ties into everybody's trying to attack banks, or become banks, et cetera ... The title of the article is "Can [00:47:00] Silicon Valley Remake the Payday Lending Industry?" They really focus in on that company Earnin, which'll let you sync to your time-sheets and get paid every day. We've talked about these companies before. Employees can get instant paydays or get their paycheck two days early. We've talked about this before. The article talks about existing payday loan stores ... You're paying 600-percent interest a year ... These [00:47:30] new apps aren't really subject to Truth in Lending Act because they're not giving, technically, a loan out. You kind of do it as like tips. So, if you're a generous tipper, you could actually wind up paying 265-percent interest a year, if you're a generous tipper, and not even know you're doing it. Then, you give up a lot of hidden costs, as far as you're connecting them to your bank accounts. They can see your transactions. Even though they don't do "collections," they [00:48:00] can just withdraw the money whenever they think you have the money. The payday lender, you might get a loan, but they can't get access to your bank account and take money out. The article goes into there's just hidden costs in this. The radar's starting to be turned on, on these other companies. They might not be as perfect as they come out to seem. It's just something to keep an eye on, especially if you're doing payroll ... Your small business owner has employees like this that are using these services. Just be aware that they're- Blake Oliver: So, [00:48:30] is this something that a business owner would sign up for, or can employees just do it on their own? David Leary: I think the employees just do it on their own. Blake Oliver: Oh ... Well, then, there's really nothing that we can do about it, right? David Leary: Oh, as far as a bookkeeper goes, or an accountant? Blake Oliver: Yeah. I'm just trying to figure out what is the tie-in to bookkeepers or accountants. What does it have to- what can we do about it? David Leary: In the olden days, people used to ... They would sometimes give a payday loan to their employees, just the company would; they'd give an employee an advance, right? Blake Oliver: Yeah. David Leary: You can do something about it. You could pay your employees [00:49:00] more frequently. There's lots of things that could be done ... It's just something to be aware of because it seems like it's this magic tech solution and maybe it's not. It kind of ties back to that other article from two weeks ago. Like it or not, you're just still broke. You can have all the apps you want, but you're still broke. I think that's about it for this week. Blake Oliver: That's all I got. Until next week, where can people find you online, David? David Leary: You can track me down on all the socials. I'm @DavidLeary. Blake Oliver: And [00:49:30] I am @BlakeTOliver. David Leary: And The Cloud Accounting Podcast is on all the social, including Instagram now, as well. Blake Oliver: We actually had some comments from people saying that we look different than they imagined. I don't know ... David Leary: At QuickBooks Connect, somebody thought ... Yeah, they imagined your voice was gonna come outta my body, when they met me. I'm sorry to disappoint you. Yes, I look like this AND I have a crappy voice! That's the way it is ... Oh, merch store! The limited-edition cassette-tape [00:50:00] shirts are only on sale til December 12. So, you have to order it by December 12, or it'll just go away. That's it. Then we'll come up with some other cool shirts, maybe ... Blake Oliver: Sounds good. Well, until next week, David, great talking, and I'll see you then. David Leary: Bye, everybody.