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Pilot is one of many fast-growing, scaling, tech-first accounting and bookkeeping businesses. Aiming to commoditise bookkeeping and compliance like never before, the Jeff Bezos-backed firm is less a firm and more a tech start-up.
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The billion-dollar opportunity in accounting
31 January 2022
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11 minute read
And they aren’t the only ones, competition is aplenty:
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- Pilot (US) – Raised $100 million in March 2021, giving it a billion-dollar valuation
- Bench (US) – Raised $60 million in June 2021
- Botkeeper (US) – Raised $42 million in November 2021
- QuickBooks Live (US) – Obviously backed by Intuit
- Just to name a few…
How have they done it, and is the model working?
Firstly, these solutions are highly targeted. For example Pilot focuses on rapid-growth businesses (i.e. other start-ups), while Bench has their attention on smaller operations (sub $5 million turnover).
Secondly, their scope is limited. They aren’t trying to do everything that an accountant can do, instead they are primarily focussed on the systematic and repetitive processes (i.e. bookkeeping and basic compliance, with a few variations between them).
In terms of the quality of execution, it’s still early days so just like with any start-up, it’s unreasonable to expect perfection but reviews online are good, with the odd bad experience mixed in. An article from Blake Oliver (host of the US-based Cloud Accounting Podcast) explains why they aren’t winning everyone over, yet!
No matter where you look to measure early success, it’s safe to say these valuations are extremely bullish, with Pilot reportedly having just over a thousand clients in 2021 – the same year their valuation reached $1 billion. Perhaps there is a future collaboration with Mr Bezos and Amazon in motion.
What is it about these start-ups that sparks my interest?
Well, beyond the obvious fact we are talking about a billion-dollar accounting firm, every single one of the companies listed is US-based. As a chartered accountant who has followed the cloud accounting movement in Australia and New Zealand closely over the past 10 years, it’s interesting to see our countries are not present on this list.
Usually this wouldn’t surprise me, as the US has a fantastic start-up scene… but I have always felt when it came to accounting tech, we had the wood over them. After all, Xero and the fast-growing ecosystem of add-ons were born in our corner of the globe, and we were the birthplace of completely cloud-based firms!
In comparison, the US is a nation that has an extremely fragmented banking system, 50 different state tax regulations, and has stuck with physical cheques over contactless payment for a decade too long (although the COVID-19 pandemic has likely forced their hand here).
It almost feels like a leapfrog move by the US. Similar to the way Africa skipped the landline (Pew Research Centre) and jumped ahead in the mobile race (circa 2015). The US is leapfrogging us, having previously had a relatively slow uptake of cloud accounting tech (Stuart McLeod, chief executive and co-founder of Karbon).
Does the model translate to Australia and New Zealand?
Despite some questionable feedback to date, the concept these start-ups are built on certainly has legs. Especially if they find a way to get access to clean data at scale. No, I don’t see a world with another “big 4”, but perhaps there is scope for one or two of these to become behemoths. Perhaps by integrating closely with e-commerce platforms, like the aforementioned Amazon play (let’s also keep an eye on what Shopify does next).
If we step back and look at some of the assumptions they are built on, it seems as though the service could work here too:
- Business owners are happy to have their bookkeeping outsourced (and many accounting firms are already palming this to offshore teams).
- The US and Australia are relatively comparable from a regulatory perspective. Equally complex, just in different ways (as the tax complexity index shows).
- And look at the way newer generations interact with service providers, favouring subscriptions that they can sign up to with little to no human interaction. You don’t have to look far for examples; cinemas (Netflix), hotels (Airbnb) and taxis (Uber).
So although the professional services game has forever been about relationships, this offering combined with the change in customer behaviour has me curious to see if young Australian and New Zealand business owners may stop looking to their parent’s accountant for their basic needs, and instead look to a scaled tech solution for out-of-the-box bookkeeping and compliance.
Is this a risk to your accounting firm?
Although this may be the next frontier, and certainly something to keep an eye on, these “services” do not spell the end for genuine, honest and personal bookkeepers and accountants. These scaled services are shallow in their offering, and we all know that providing a set of financial statements is one thing – helping a business owner decipher them is completely different.
In saying this, if you’re in the game of using technology to minimise human interaction, or perhaps you have a sign in your window that says $99 tax returns, perhaps ask yourself if you might be at risk?
Jack Thiel is the co-founder of Early Adopters Hub.
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