One of the most expensive endeavors in enterprise cloud software is building a cloud financials business, according to Rob Reid, CEO of Intacct.
We spoke yesterday after the fifteen-year-old company this week announced a $45 million funding round (including $15 million in debt), bringing its total funding since inception to $135 million.
That figure is in line with the sums that went into NetSuite and Workday before they went public, Reid pointed out:
"Financial management accounting is not for the faint of heart. It has a lot of very expensive requirements.
"The profession has been around six or seven hundred years. Everything has to be correct. It requires significant investment from any organization to go after a financial management solution because you have to do so much.
"This is an application area that is the largest business application sector but it requires big pockets to be able to satisfy the demands of customers."
Reid confirmed that an IPO is definitely on the horizon for Intacct:
"An IPO provides you the access to lower cost capital than you can get from a bank or a bunch of venture capitalists.
"Netsuite and Workday had successful IPOs and we want to do the same."
The path towards that intended IPO has been rather more long and winding for Intacct than for the two others Reid cites. He is the company's fourth CEO, for one thing, having taken the helm in October 2009. That now makes him the second-longest serving in the role since founding CEO David Thomas stepped down in August 2004.
On relying on accountants
In retrospect, Intacct's mistake in its early years had been relying too much on the accountancy profession to market its cloud-based offering, said Reid:
"The market and the overall proclivity of accounting firms to adopt the new techology didn't move along as fast as other sectors of the economy."
It was not that accountants didn't want to use the cloud, he explained. They were enthused by the prospect of being able to move away from routine bookkeeping to spend more time advising clients thanks to better visibility into key performance indicators and the like. But they couldn't overcome their clients' reluctance at the time to move financial data to the cloud, said Reid:
"Accountants being accountants didn't try and push back on that."
So with the arrival of CEO number three in early 2007, Intacct switched tack and focused more on selling direct to small and mid-sized enterprises (SMEs):
"We augmented that strategy going after SMEs and since then the company's been growing at a very nice clip."
At the same time, it continued its relationship with accounting firms, becoming a preferred provider of the American Institute of Certified Public Accountants (AICPA) in 2009. Now that cloud has entered the mainstream, that relationship is thriving, said Reid:
"Guess what? Now people are accepting the cloud, the accounting firms are developing their business very nicely now with us."
On the competition
Intacct competes for business against NetSuite, Sage and Microsoft, said Reid, with NetSuite its closest competitor. But he sees NetSuite putting more focus on its 'two-tier' strategy of targeting subsidiaries and divisions of larger enterprises: "We are not trying to move on up like they are."
Meanwhile Intacct appeals to companies that are dissatisfied with what's on offer from the established conventional vendors, said Reid:
"The kind of customers that typically go with us, they are data-driven strategic thinkers, thinking through how they're going to automate processes and they're on a growth path.
"They say, 'Not only do we not want to fall behind, we want to be at the forefront'.
"We're providing solutions that you can't get from the legacy vendors. Sage and Microsoft do a good job of counting the beans but it's not easy to extract out information to do good decision-making ..."
"Microsoft customers are not able to work at the speed we work in the digital world. They just can't keep up. It's thirty-year-old technology."
Intacct has itself had to keep pace with changing expectations over the years. Two years ago, the product "required some pretty good insight on how to use it," admits Reid. The company hired a team of former Quickbooks designers away from Intuit to give it a consumer web-inspired makeover. That made a big difference, said Reid:
"When people look at our solution, you can just ask them to go off and do a task and 99 percent of the people can just go off and do something that used to require a lot of instructions. The system's very intuitive."
"Pushing on out all this information to people in the organization to make strategic decisions has been really important for us."
That extends to mobile, with a number of functions supported on mobile devices such as dashboards and KPI tracking, expense reports and purchase order approvals. But heavy-duty users still generally work on PCs at their desks in the finance department, said Reid.
Intacct has always aligned itself with a best-of-breed approach that keeps it focused on financials rather than offering a broader, ERP-style suite of functionality. Recent integrations, such as bringing Salesforce Chatter into the application and a tie-up with subscription management vendor Zuora announced earlier this month, have vindicated this strategy, believes Reid:
"With client-server and mainframe it was so hard to move information from one solution to another, that ultimately people ended up with a suite vendor. The Web eliminates that. In our very first release, one of the major tenets we were betting on was best-of-breed would dominate in the cloud environment. That we have now seen to be true."
To support its go-to-market, Intacct has been on a quest to sign up what Reid describes as "the best of the best" of the Sage and Microsoft value added reseller population. Almost a third of its 75-strong partner base are drawn from the top 100 VARs, he said.
"Most of them came from the accounting profession and they're very experienced in understanding the requirements of a CFO or an accounting firm.
"We've had to teach them about the cloud. With the cloud you're looking for a long term ongoing relationship — you have to earn the customer's business every day. What we are trying to do is draw in VARs that want an ongoing relationship and want to really be a trusted advisor to that customer.
"We're having to train them not just on the cloud but how do you provide ongong long-term value.
"We've deployed a lot of resources to be able to help train them, take them through the process and explain from an economic perspective why it benefits them."
It's been a long haul for Intacct but its focus on financials and the SME market sets it apart in its chosen segment of the market. Its investors' patience may finally be rewarded if it can just make it to that IPO.
I asked industry watcher Brian Sommer for his comment on Intacct's funding and he pointed out that both NetSuite and Workday have raised huge sums in recent months: $270 million for NetSuite and $530 million for Workday. I'll give him the last word on this:
Why is all of this capital coming in now? Capital is currently cheap but it won’t necessarily stay this way too much longer. Also, cloud companies, especially high-growth cloud firms, need lots of capital to underwrite that growth.
Rapid growth is key to grabbing available market share because the replacement cycles for back office software are often a decade long. If a vendor doesn’t capture that growth now, they’ll have to wait a lonnnnnnnng time.
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