Intuit’s long-serving CEO Brad Smith swung by Sydney to join a quiet briefing with bookkeepers and accountants in the accounting giant’s pilot program for QuickBooks Online. New features such as inventory and an integration with an Australian online payroll provider were part of the announcements.
Smith, a well-mannered West Virginian who speaks with a slight southern twang, has held the top job for five years at one of world’s largest financial software and services companies, with 8,000 employees and nearly $4 billion a year in revenues. In an exclusive interview with BoxFreeIT, Smith was upbeat about the disruption facing accounting software and spoke about cannibalising existing revenues with new products before competitors did.
BoxFreeIT also asked Smith why Australia was one of just four countries (besides US, UK and Canada) to receive a country-specific version of QuickBooks Online, what features were in the pipeline and about the changes facing accountants, bookkeepers and accounting software in general.
BoxFreeIT: When I talk to Reckon they say, ‘Intuit are clearly here because of us’, and when I talk to Xero they say, ‘Intuit are here because of us’. What are the driving reasons for choosing Australia?
Smith: Well, it’s a combination of reasons. The thing that gets us most excited is that it may be one of the strongest small business-driven markets that we see across the globe. And when you serve small businesses and you see 96 percent of enterprises in Australia are companies with fewer than 20 employees, represent one third of the economy and 50 percent of the workforce, that’s a place where you can learn a lot and you can take those learnings and apply them elsewhere. That’s a primary driver for us.
BoxFreeIT: In your presentation you said that Australia is fourth in the world for smartphone penetration. Are the top three by any chance Canada, US and the UK? If mobile is the next big thing then that also makes a lot of sense.
Smith: Yes, they are. That’s where the computer is going so what better place to go than a smarter place where you’re going to find out how you’re going to adopt and adapt to that sort of environment.
BoxFreeIT: So you chose Australia for all those things?
Smith: Primarily because of the mobile penetration and the fact that so many small businesses operate here, and it’s a great opportunity for us to learn those two connection points.
BoxFreeIT: How fast do you think desktop accounting software companies can catch up to QuickBooks Online? Reckon want to do it, MYOB are doing it in their own fashion. Do you think they can and what’s it going to take for them to catch up?
Smith: Well I think you’ve got the old Silicon Valley joke. The reason why God created heaven and earth in seven days and seven nights is he didn’t have a legacy in technology and an installed base of customers to worry about.
We have had a cloud-based version since the late 90s and we’re still a work in progress. We’re working on getting deeper inventory functionality and building payroll in on a global basis. So you can’t get there overnight. What I think you’ll see a lot of people doing is taking a desktop product, get it up into the cloud and sync it. We’ve got a version of that too and that comes with its own set of challenges.
So I don’t doubt that hey see the same future we do and are coming after it but I do think that they’re going to have a lot of heavy lifting ahead of them because they have to take care of their existing customers and invest in new products. And I think we have a decade head start.
BoxFreeIT: Why is your syncing product not selling? Isn’t that cloud enough?
Smith: Well I think it comes down to what the next generation of customers want. I don’t think a syncing product will give it to them. I think at the end of the day the pure cloud based solution addresses the issues you were talking about which is all the IT and server cost and the maintenance problems that you have with that.
A pure cloud based solution gives you the efficiency, the effectiveness, the cost of ownership being lower, anywhere anytime access, the ability to have virtual collaborate with an accountant or a bookkeeper, so you’re seeing the same file. All of those benefits outweigh what I’m seeing as an interim step which is an on-premise product that syncs up to the cloud.
BoxFreeIT: What is the name of your syncing product?
Smith: We have a QuickBooks Connected. It is a nice step for customers that really want to access the desktop product from desktops, tablets and phones and it’s similar to what MYOB is doing. We’ve had it out for several years. But the cloud-based product is outgrowing it significantly.
QuickBooks Online is growing in the mid-20s consecutively. 380,000 customers, it’s grown 27 percent. QuickBooks Connected is off a pretty small base but its percentages aren’t growing at the same rate. I don’t have the figures off the top of my head but it’s below 20 percent.
BoxFreeIT: One of the bookkeepers raised earlier the issue of ownership of data with cloud software. What are your thoughts on the ongoing ownership of data in QuickBooks Online?
Smith: Ultimately will see the entire thing move to cloud-based software but you do have this interim step with people that have concerns about the power outages or having access to the local data. You can either solve that problem by having a local client application that won’t be as heavy as a piece of desktop software that has to sync. I think you can get at it in a similar approach and those are the things we are testing right now in different markets.
BoxFreeIT: What are your thoughts on Xero and its growth? It’s gone from 50,000 to 110,000 in 12 months. Its rate of acceleration appears to be increasing. What are your thoughts as a threat to QuickBooks Online?
Smith: Well, I admire them. I think Rod Drury and the team have built a really good company, they have built a very easy and compelling product, they have taken a different approach.
When we first launched QuickBooks 20 years ago we built the first accounting software without the accounting in it and it became so readily adopted that it became an important tool for bookkeepers and accountants who wanted to work with their clients.
Xero’s gone in the other direction and said, how do we design this so the accountant is a key part of the relationship with the bookkeeper and then have them do a lot of work for the small business. I think both are important.
I would say that we’ve learned some things from Xero that are helping us think differently, which is the highest compliment you can pay to someone who competes in your space. I think on the other hand we have some things which differentiate us and I think it’s only good for the end user. But I have a lot of respect for them. I think they have done some very interesting things.
BoxFreeIT: Now this concept of the single ledger, as Xero calls it, or MYOB says it’s the common ledger. Xero’s using it as a point to attack practice management revenue of its competitors. Do you see that as the future, where practice management is tightly integrated and there’s no uploading to another solution?
Smith: We do. In fact we have a concept in the US we call the Virtual Office which is the same thing. It’s the number one thing that accountants and bookkeepers want is they want to be more productive. They want to work with more clients or they want to shift more to the advice and the consulting and the trusted adviser and less of just doing the tasks.
So the more that you can liberate the data the better you’re going to solve their problems. We just rolled out in a bunch of accounting conferences in the US integration between QuickBooks Online and an online tax product.
You a single log-on and have the data flow through so you’re literally doing the books and it goes right into the compliance product to do the taxes. Practice management is a piece of that as well. So we see it exactly the same way as Xero is articulating it.
BoxFreeIT: Xero and Saasu have integrated with other cloud programs, creating an effect like an app store. What role do you see accountants and bookkeepers in recommending business software to their clients? Will it stay limited to accounting software or will they be competing with IT consultants to some degree?
Smith: Oh I believe they will be competing with IT consultants and others. In every corner of the globe that we go to the most trusted adviser a small business has is the bookkeeper or the accountant. In the US eight out of 10 accountants recommend our products. They also recommend the third-party products that work well with QuickBooks.
And they want to play that trusted adviser role, they don’t want to just be a tax accountant and do the books. So I think their role is significant and critical which is why we’re taking our ProAdvisor program across the globe so we can form relationships, help them understand what we’re doing and more importantly have them help us make our products better in the local markets.
BoxFreeIT: When I speak to accountants and bookkeepers it’s a very conservative industry. It’s like this role is being thrust upon them. How do you see accountants and bookkeepers making that transition to that broader role their clients are demanding of them?
Smith: Well it’s interesting. We’re seeing a big phenomenon right now. In the developed economies the babyboomer generation are now entering their 50s and 60s are handing over their firms and their practices to the next generation. And this next generation grew up with PlayStations and iPhones and they don’t want to be tethered to a desk during a tax season.
They are looking to embrace these new roles. And then you have a group of established professional today who are also progressive. I think it’s just a matter of time that the industry is evolving.
BoxFreeIT: I’ve noticed today that you and the other Intuit executives here are doing a lot of listening to individual bookkeepers and accountants. It’s unusual to see such a company with 60 million customers take an interest in individuals.
Smith: This transformation is happening so quickly that we can’t stay on top of it if we don’t have our ear to the ground and talk to customers every day. So we’ve introduced a model based on a book called the Lean Startup by Eric Ries, and it’s basically rapid experimentation.
We’re trying to put the power of decision making in the front line with these small development teams that can literally iterate with customers, and the customers are telling us what they want. So I no longer have to play the crystal ball game of what I think is going to be the next big product, I simply have to look at which ones are getting good demand and we double down.
Last year we got $100 million revenue from products that hadn’t been in the market for more than three years. and that’s 10x what it was two years ago.
It takes pressure off the leadership and empowers the engineers so they actually feel like they are in a company where they can innovate.
BoxFreeIT: So you can just fly around in private jets with John Chambers (CEO of Cisco, also from West Virginia) and play golf now, right?
Smith: Yeah well, I suck at golf and there’s enough other things. In fact my job becomes removing the barriers. When you are 30 years old you have tech debt and you have to eliminate that and make it easy for the engineers to move fast. It’s fun.
BoxFreeIT: There’s so much you can add to QuickBooks Online, obviously this is just the beginning. What do you see as the next most important features? You mentioned global payroll?
Smith: It ends up being inventory, because a lot of the businesses are manufacturing and products and goods; payroll which is very important, compliance driven, and basically it’s viewed as a key piece of financial management; payments is becoming an important component, particularly mobile payments and the ability to have those payments synced up whether it’s any sort of a debit card, credit card or PayPal. Those are key components.
People often forget because it’s not necessarily a technology feature but a key piece is the support model. There are innovative approaches to support now that go beyond just having local support. It’s also live communities.
We embedded the ability for customers to answer each other’s questions in our products and last year 25 million questions got answered by other customers at an accuracy rate higher than our own agents. These are customers that live it every day and sometimes they answer questions we cant answer because we’re not accountants and we’re not doing taxes. So those sorts of innovative models are important things for us to do as well.
BoxFreeIT: So you get customers to do your product development, and you get customers to do your support – what are you guys doing over there?
Smith: You know what, we’re just trying to react. We’re on a four week development cycle so we get all that input and we get a new version out every four weeks and just continue to stay up on it. That’s called participation-driven innovation.
BoxFreeIT: It sounds cheaper.
Smith: That’s right, I hear you.