Sage Group ousts CEO Stephen Kelly amid faltering cloud transformation

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David is back from his well-deserved vacation and ready to discuss Sage’s sudden move to oust Stephen Kelly as chief executive. Chairman Donald Brydon reportedly said, “We need to get a CEO that has SaaS in their veins.”

Kelly joined Sage four years ago with a mandate to shake up the company, but despite the acquisition of Intacct, he has apparently been unable to turn things around quick enough for the board. Sage is facing increased competition from Xero on its home turf in the U.K and has been unable to gain market share against juggernaut Intuit in the U.S.

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Transcript:

Cloud Accounting Podcast E34: Sage Group ousts CEO Stephen Kelly amid faltering cloud transformation

Welcome to the Cloud Accounting Podcast, a show for accountants, and bookkeepers using cloud technology to make their jobs more strategic, and impactful. I'm Blake Oliver-

And I'm David Leary.

David, how was your week off?

Week off ... It was good. It was good. I basically drove across New York State. I started in Buffalo; went up to Niagara Falls, went to the Albany area, and then drove the rest of the way to New York City, and flew outta New York City.

I followed the whole Erie Canal, essentially. I took a boat tour. I was in the Erie Canal. I took a little riverboat historical tour. I visited a Frank Lloyd Wright house. I really checked out, and I know a lot ... The world kept going on, but I really tried to avoid checking into anything, too much.

Yeah, well, it was ... I'm glad you took a week off, but while you were gone, some earth-shattering news dropped in the world of accounting technology. Stephen Kelly was ousted as the Sage CEO.

Wow.

Yeah.

Oust is a strong word. It's interesting that they lead with that, on the-

Well, yeah, unlike Rod Drury, of Xero, and-.

Brad Smith?

Brad Smith, of Intuit, Stephen Kelly was forced out. He did not voluntarily leave on his own accord. He was unceremoniously dumped overnight, by the board.

One thing that struck me, in all the stories that came out about this, is the chairman of the board of Sage Group saying that, "We need a CEO who has SaaS in his veins." Clearly, after four years, the board is not happy with the progress that Sage has made, moving from desktop on-premises applications into the cloud.

I think they're feeling a lotta pressure from Xero, especially in the UK, on their smaller segment of the market they serve. It's tough for them. They make ERP products. They're the third largest ERP seller in the world, after Oracle, and SAP, but they also have products that are for small businesses. They're just having a really, really hard time making the leap.

Yeah, I think it's hard to do everything. I remember when ... This had to be 2015, at Sleeter Conference, I think. It was still called Sleeter Conference, which is now the Accountex USA. In his keynote, they're talking about all the stuff Sage is gonna do. They're gonna go SaaS, they're gonna have apps; they're gonna have a thousand apps on their marketplace, and all this type of stuff.

It was kind of Intuit's line in the sand, November of 2013, like two years ... They're kind of at the party two years late, a little bit, there, but, they also tried to do too much. When we declared that that was the future, or me, sorry. I'm saying "we" sometimes, about Intuit ...

When Intuit declared that as the future, they only did ... They really cut back, like, "Hey, QuickBooks Online ..." One product's the priority.

Right.

Sage has seven products, and then they ... In the meantime, also in this time, they bought Impact, so, they do have an amazing SaaS product for enterprise, but it's really hard to do everything for all the spaces at once. We talked about this with Matt Paff, a couple weeks ago, I think, as well.

Yep, we did. The Sage Intact, or the Intact acquisition was a good move for Sage, and the stock price rallied after that, but they ... The big failure was they - and I never tried it, so I'm not sure what it actually looks like - but they tried building their own cloud product very quickly, for small businesses, to compete with Xero, and QuickBooks Online, and it was, I guess, considered a failure.

Then, they also did some weird things, like they tried to take their desktop software, and make it like a subscription-based pricing model. Imagine QuickBooks Desktop, and having to pay for it monthly, and they-.

Well, Intuit does that, actually-.

Right.

I think Intuit ... I'm pretty sure they do ...

That's optional, right? I think Sage started forcing people onto the subscription plan, and it did not go over well. They raised their prices at the same time. They were trying to compete with Xero.

Definitely a lot of issues at the company, and something like 30 executives turned over, under Kelly's management, like senior executives, and that's obviously scary for the board, right?

Yeah, I think that was his mandate, right? They even said something in the article, like he was going to shake the company up.

Right. Maybe it was more than they could handle.

Yeah, but it's big news. This is now ... We were talking about this transition from Cloud Accounting 1.0 to Cloud Accounting 2.0. Now you have Rod Drury, Brad Smith, and now, Stephen Kelly. All three of the CEOs have all now ... Are no longer in the space.

I think I tweeted: we can officially call an end to Cloud Accounting 1.0. We are now in the next phase of this. I think you even had mentioned ... Quickly, you had some article that kinda even reinforces that even more, right?

I've got this article that I read in Accounting Web, called, "Why Technology Won't Hurt Client Relationships," by Deanna Arteaga. A lotta stats in here that are really interesting; stuff that's gonna be familiar to anyone who's been doing cloud for a while.

One stat, in particular, stuck out to me, and it's that employees in firms that provide complex business-advisory services, as opposed to just compliance, they spend about eight hours each month educating themselves about new business apps, which is double the amount of time that employees at compliance-focused firms spend looking, and educating themselves about new apps. Eight hours versus four hours, that's a pretty dramatic difference.

I'd imagine the amount of training that they're ... The effort they're putting in is also different. I've done some webinars on CPA Academy, and you can ... You know if they're from big firms, or if they're from tax, or if they're doing client-advisory services, small-business-type stuff.

You can tell because, the way they answer the survey questions, because they'll give you pop surveys, like, "Do you have any small-business clients?" and there's like, "No, no, no ..." It's almost where they're just taking these class- they are taking training, but they're almost just taking it to quickly get the CPE credit.

Yep.

Even though the time ... I think that the ratio may even be understated some.

Yeah, definitely, and, I'm sure in the most cloud-focused firms, it's quite a lot of time. It could be way more than one day a month.

What do you think drives that? Are accountants, and bookkeepers that do client-advisory services, is it all about them just constantly trying to be more efficient, more efficient, more efficient, more efficient ... Automated processes; stop with that manual data entry, is that kinda what's driving that, or is it just there's so many new apps, you just can't keep up?

Yeah, I think it's the second thing. There are so many new features coming out, all the time, from cloud-accounting apps. Case in point is Xero just had their XeroCon. I think this was in Brisbane, which is one of the big ones, where they have thousands of people attending.

They just announced a ton of new features, so, if you're using Xero for accounting, you'd better learn about these things. It's quite a lot. I'll go through the list for you.

Definitely.

They've got a new ... It's interesting, a lot of the new features in Xero are expanding beyond just the core accounting, and into more document management, or working with clients. This is along the lines of Xero's announcement that they are no longer an accounting solution, they are a business solution.

It's interesting, cuz their mantra, forever, was "We're just a GL," right? [ Crosstalk].

Yeah, well, it was beautiful, beautiful accounting software.

-kinda thing for a long time, where-

Now, it's beautiful business software is where they're going.

Got it.

Here's the new feature. They've got this new "Files Required" feature, which allows advisors to identify, and collect client documents in one place. It's pretty cool. Instead of emailing ... I haven't seen how this works, but I'm assuming instead of emailing the client, asking for a file, you can do that from within Xero.

They are going to be creating a more intuitive invoicing experience, making it easier to invoice customers. They're rewriting their invoicing module. This one's exciting: Xero Email to Bills. This expands on their existing machine learning feature, in Xero, so, if you have a bill from a supplier, and you forward that to an email address, Xero will automatically extract, and populate the details from that PDF file into a bill, in Xero. This is very similar to the Hubdoc functionality.

Yeah, that's really similar to a half-dozen apps. You can do that with Bill.com; you can do that with a couple different apps, where you can send the bill, and then they'll just extract the data, and shove that into ... It's interesting, they're building that straight into the accounting system.

Yeah. It's not gonna be groundbreaking for accountants, and bookkeepers, because, if you're in the cloud, you're probably already using an app that does this, like, say, Hubdoc, which Xero also just acquired, interestingly.

I think this'll be more of an impact for the business owners, who are doing this themselves. I don't have to go out, as a business owner, and try to find some special app that will do the data entry for me, cuz I'm probably not going to take that effort, but now, I've got this functionality in Xero.

I've always felt like, at a base level, the accounting systems are gonna do some basic level of what apps do, like QuickBooks will have just-good-enough shipping, just-good-enough inventory, maybe just-good-enough data capture, things like that.

But, as soon as you have extra needs, like you have an approver for the bill, or you have some extra process, that's when you have to go out, and find that next-level app. It's almost like the camera apps on the phone. They give you enough filters, by default, to give you that taste, but, if you really need extra filters, you need to do a bunch of fancy stuff, you're gonna go find another app. You wouldn't know it's possible do that stuff, if you didn't get the taste, by default.

Yep. Two more things they announced, at XeroCon, that are interesting to me is, now, Xero Projects, it's their project-management module, which is extra. That is now integrating with Timesheets, so you can actually run payroll, and have the project's data feed into Timesheets.

Lastly, and this is the most exciting thing to me, but, it actually didn't make the ZDNet article, probably because it's so nerdy ... It's that Xero is opening up their bank-feeds API. Now, anyone is going to be able to connect to Xero, and push in bank-feed information. You're not gonna have to wait for Xero to work with a bank to create a feed. The bank can do it themselves.

Got it, so the banks can proactively ... There's a set of standards, now, and they can create ... They can now connect the other direction. Yeah, that's interesting.

What's exciting about this, too, is that I'm thinking of applications for nontraditional payment services, or non-traditional banking-type services, for instance, blockchain. A blockchain-accounting application could now hook up to Xero's bank-feed API, and send in those transactions, as if it's like a bank account for your blockchain wallet.

We don't have to wait for some bank to figure out how cryptocurrency works, and do that for us. Somebody could write that now. Potentially, it could accelerate the adoption, or the ease of accounting for cryptocurrency, which might make businesses more willing to use it.

Yeah, I could see that, also, with smaller developers that are- they're like startups. These teenier ... Either they're a credit-card-based company that are providing some sort of prepaid credit card, or maybe even a startup bank.

To be honest, going the other direction, there's ... Especially in the States, there's 20,000 banks, or financial institutions. The time somebody like Intuit gets down to the teeny little bank to integrate with their bank feed, it's just a long road, versus the other way. This could actually ... It could open up opportunities for smaller banks to get some traction with small businesses. It's interesting to watch that one.

Yeah. Another one to think about is Venmo. Tons, and tons of small-business owners, service providers, are now getting paid via Venmo, by all of their customers. That's how my wife pays one of our fitness instructors. Venmo could build a connection to Xero to push transactions in, via the bank feed. It's not a bank, but it works like a bank account.

Yeah. No, no, exactly. No ... . It'll be interesting to really watch that. That'll be, definitely, something to see. Do they stick with it? Building APIs is hard enough for your accounting system. Building APIs, now, for your bank feeds, is a whole 'nother layer of complexity, cuz, now it's a different customer base, as well, with different demands.

It'll be interesting to see where that goes, from a direction ... Is this a direction, where all these banks, and the people who have the data, are going to go out of their way to build tech stacks to shove data into accounting systems, or not? This'll be really interesting to watch over the next 18 months, or so, I think.

What's next?

I have a ... Do you remember a couple weeks ago, we were talking about there's risk in providing client-advisory services?

Yes.

We brought that up ...

Yeah, well, you're gonna get ... The more advisory services you provide, the more likely you are to get sued, if that's bad advice.

Yeah. I think it's actually a whole new layer of just providing any accounting services is risk, if there's bad things happening. An article I found is Kevin Garnett ... He's a basketball player. I think he was on the Celtics.

He's suing his accountant, because he lost $77 million. His wealth manager basically stole $77 million from him, and he's suing his accountant, the accounting firm, Wertheim And Welenken CPAs, because they kinda turned a blind eye to it.

The fact that they did not actively go out of their way to alert him of this, they're being sued. They weren't even providing advisory services. The fact that they just didn't advise, at all, put them at risk.

I'm sure that the lawyers are now poring over those engagement letters to find out if the accounting firm disclaimed any liability from providing that kind of assurance, or that kind of internal control, or risk management for Kevin Garnett.

Yeah, it's gonna be interesting to watch this one. I'm assuming accounting firms are gonna be ... You're insured for these types of events?

Yep.

You start reading the article, and it's almost implying that they may have even been in cahoots a little bit, with- in concert with him, but that's in speculation, and the lawyers will figure all that out. The fact that not providing any advising service could actually still get you sued, you're kind of in a no-win situation, there.

Yeah, it's tough.

Any other articles? Let's see, let's see, let's see ... The Top 100 Most Influential People in Accounting list came out. I don't know if you saw that.

Paul Ryan makes the list; Donald Trump makes the list. If you're the CEO of a major software company, you probably made the list.

I think, for me, is if I just scroll through it, and I haven't, it'd be interesting to really run numbers, but it really speaks to the lack of diversity. It is a bunch of older white guys on this list-

Well, hey, let's say congratulations to Geni Whitehouse-

Yeah, except Geni.

-for making the list, our podcast guest. Go check out her episode, if you haven't listened to it. For being one of the few women who made the list, congrats.

I see Jody Padar is on there. Who else is on here that's been around ...

She's been on the podcast, too. has been around to Sean Stein Smith, who's in an upcoming episode. He made the ... What is it? The runners-up list, which is nice, because he's one of the younger folks, I think. Donny Shimamoto, who also was on the podcast.

Yeah, it was interesting. I think they, which I don't feel like they've done in previous years, when they introduced the list ... There's a lot of framing around the creation of the list, this time. They've been compiling it for two decades, and that there's all kinds of new areas of influence, and there's new influencers.

They're trying to balance all that out, and it's a difficult. They think that this might be the most influential ever, but, they also can't put everybody on it, so, it's ... I imagine it's not easy to make a list like this.

No, definitely a challenge, but, always fun to read it, when it comes out.

Oh, yeah, absolutely. Obviously, you vanity-scroll. You check for yourself, just in case, and then, I looked for you, cuz it is an alphabetical order, which made it very convenient to do that quickly on the phone.

That's true. David, I don't know if our listeners are aware, but you have- you've never made the Top 100 list, but you have made that Folks to Watch list.

Yes, I did make that a couple years back; me, and the Microsoft CEO.

You're in good company.

Yeah ... He couldn't make the list, either, so I didn't feel bad about that. I do have to commend Accounting Today, though, on doing this just as one long web page, because a lotta times, people dose Top 100 lists, or the Top This ... They put each person as a separate page. You gotta click. It's like a BuzzFeed article, or something, just so they get more clicks.

Nobody has patience for that, so, it's nice that this is all on one page. You can read the article, you can scroll through; you're not clicking, and clicking, cuz you'd lose interest after 10 in a row. You're not gonna click to whoever's 97, but, now, you could just scroll through the list, and see everybody at once. It's really ... I'd like to commend Accounting Today for making good judgment on behalf of the reader, so it's easy to read the article. It's not an SEO play.

Hey, well, I'm a little late with this article, but I thought I would shout it out, because I'm always talking about the unemployment rate, the difficulty hiring accountants, all that good stuff.

The stat I've been using for a long time is from the first quarter, and I'm happy to report that, now, Robert Half is out with the accountant unemployment rate for Q2, or at least they were, back in July. It really hasn't changed that much. It's at two percent in the second quarter of 2018. Still way lower than the four-percent national unemployment rate. Accountants, and auditors, two percent unemployment ... If you're thinking about jumping ship, and looking for a new job, probably a good time to do that.

By the way, if you're a financial manager, which, it's a very broad category, cuz this is based on the Bureau of Labor Statistics, and they don't break down job titles more than that ... Financial managers include controllers, CFOs, that sorta thing; people in a management role in accounting, or finance. That unemployment rate is 0.8 percent in Q2 ... 0.8 percent. Might as well be nothing. A great outlook/job prospects for financial managers, and their staff.

That's good. I can actually add on to that. There's an article I found about how blockchain is disrupting the enterprise, finance, and accounting departments. Some of the article is a little bit high-level, about accounting- sorry, about blockchain, and how it's turning mainstream, a little bit.

The real key is, to tie it back to your article, here, is at the bottom, they're talking about candidates that show any cryptocurrency experience are 10 percent more likely to get a first-round interview.

Really?

It's time to ... Yeah, you probably need to get some crypto, or blockchain experience, training ... I don't even know if you can get certification. You probably wanna start having that in your resume.

Yes, even though the job market is really in the favor of the job seekers, right now; but, to set you apart from other people that are probably searching, it's probably wise to try to get some sort of cryptocurrency, or blockchain, or [crosstalk]

Just know enough to be able to put it on your resume, like your Excel skills.

Yes.

Wait, what was the number you said?

They's extrapolating this a little bit from a different survey, focused on e-trading execution. They've seen a shift there, already, where people that have some background in blockchain, cryptocurrency, etc., are 10 percent more likely to get a first-round job interview.

I found it ... It says successful trading experience in cryptocurrencies, or Bitcoin trading are 25 percent more likely to get a first-round interview. That's what you said before.

25 percent ...

25 percent, yeah.

Oh, so, actually, they have two paragraphs. Okay, got it, got it, got it. Then they have another paragraph that says the same thing, but with 10 percent.

There's another stat in this article. It's quite a long one that said that, according to a recent survey, 50 percent of financial leaders say blockchain will be part of their business transactions in the next five years. 50 percent say blockchain will be part of their business transactions.

It will not only give you a 25-percent chance. 25-percent better chance of getting a first-round interview, having experience in crypto ... You'd better have that experience, because it might be part of your job in the next five years. Crazy.

I think, to start, and I have not done it yet, either. I've been saying I'm gonna do it, and maybe I'll try to do that, is like I guess just get a hundred dollars' worth of Bitcoin, I guess, in a Bitcoin wallet, and then try to buy something on the internet with it, and see how it goes. I guess that's-.

Sign up for a Coinbase account; send me some money, David.

Maybe we could do it that way. We'll create an account, and people can give money to us.

Yeah, there you go. If you want [crosstalk] to support the Cloud Accounting Podcast, send money to this Bitcoin wallet. We'll try it. We'll see if anyone does it.

Yeah, that might be a good way to do it. I think the takeaway, here, is yes, blockchain is disrupting our world - enterprise, finance, and accounting departments - but the real takeaway is you can differentiate yourself by just having a teeny bit of experience in this, at this point. Everybody should go out, and, maybe this weekend, create a blockchain wallet.

Sounds good. Well, David, that's all the time I've got for this week. If folks wanna connect with you online, where's the best place for them to do that?

Twitter, definitely; it's @DavidLeary, and I'm still using LinkedIn a little bit more, I've noticed. On LinkedIn, I'm also David Leary-

Great. Connect with me, @BlakeTOliver, on Twitter, and LinkedIn, as well. Feel free to follow me, or connect with me.

Then, you have your ... You're still sending out your weekly newsletter, so those of you who haven't subscribed to that, they should subscribe to that.

Yes, and, by the way, that has changed slightly. The title is ... It used to be called Cloud Accounting Weekly. It's now going to be called Own Your Close, as in financial close. That's my newsletter for management accountants. We're gonna be ...

I, personally, am going to be focusing more of the pure cloud-accounting nerd talk, here, on the podcast with you, David, cuz I'm having so much fun doing that. It'll still be an element of the newsletter, but, just one part of it, in addition to management, regulation, all the stuff that controllers need to know, that sorta thing, but with not such a heavy focus. I'm gonna save all my good stuff for you, David.

I'm so honored. Hey, did everything settle down with your drama, the neighbor?

Yeah, my neighbor is out on bail, and he's hanging out, and everything's back to normal.

Do you guys go to your back fence. and talk to each other. [crosstalk].

Yeah, ya know, I checked in-

-say, "Howdy, neighbor ..."

I checked in with him. It's been a great opportunity to get to know my neighbor a little bit better. Sometimes, the FBI can bring communities together.

On that note, we should close this down. That was beautiful. Well-played ... Bye, everybody.

Bye, David.

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Blake Oliver

Los Angeles, California, United States