ScaleFactor Closes, Leaving Their Clients Scrambling for Alternatives
Today (June 25th, 2020) ‘automated’ accounting service ScaleFactor announced that it would be permanently shutting down, closing its doors on August 28th, 2020. In an announcement made by the CEO, they noted that half of their team (about 50 people) would be immediately terminated and the other half would help close out operations through the end of August. While some of their actions in closing are commendable-- offering 12 weeks of severance, health care through the end of the year, recruiting assistance, and allowing their team to keep their equipment-- this announcement must come as a shock... and could likely have been avoided altogether! ScaleFactor set out to disrupt the accounting industry by offering “automated accounting,” something many of their competitors have tried to accomplish but have not executed well. However, it seems the only disruption they ultimately caused is to their clients’ and employees’ financial lives - smack dab in the middle of a global pandemic and recession.
Over the course of 6 years ScaleFactor has raised $103 million in funding, $60 million raised since last August, an impressive sum from an outsider's perspective. However, in that time they have only generated $7 million in annual revenue, which seems paltry in comparison to their funding. If you consider that their main service offering is $549 per month (paid up front), a quick back of the napkin calculation would show they work with about 1,000 customers. The CEO noted that half of their revenue was lost recently due to COVID-19, which means that nearly 500 businesses cancelled in a short period of time. ScaleFactor isn’t publicly traded, so there are no investor reports to pore over, but if that math is in the ballpark, those numbers are incredibly depressing. Losing one client pains me greatly, losing half of my client base would destroy me. What is even more depressing, is that a company that has taken on an incredible amount in investment financing does not have enough cash on hand to weather the storm. How can you trust the advice of your accountant, if they are completely illiquid?
In the letter addressed to the public, the CEO noted:
“Customers want a combination of software and human support within an overall solution. Human support wants to be the hero in the customer relationship. Trying to provide both at scale stretched our business in too many directions at once.”
Unfortunately, burning through $103 million in cash has got to be the hardest way to learn this lesson. At Accountingprose we strive to adopt the best and latest technology and automate our solutions wherever possible. We recognize, though, that the most important part of the accounting engagement is the human relationship; providing timely, data-driven, and bespoke advice to our clients. The truth is accounting likely will eventually be automated. Perhaps not all parts of accounting, but the day-to-day minutiae will eventually be handed over to the robots. Many luddite accounting firms may balk and hold ScaleFactor up as proof that automated accounting isn’t possible, but the truth is- automated accounting is just not possible yet. I for one welcome our robot overlords, because I see this as an opportunity to shift our focus from data entry to data validation and advisory work. We should spend our time helping our clients navigate the challenges of small business ownership; be their steward and partner in the good times as well as the unprecedented, unbelievably weird times.
Since the onset of the COVID-19 pandemic, we have worked extra hard to help our clients stay afloat and find new opportunities. In fact we have...
- Secured over $10 million in PPP/EIDL loans for our clients, at no extra cost to them. Rather than seizing the opportunity to capitalize on the pandemic, we put in (frankly grueling) overtime at no cost to our clients. Many of our clients were funded in the first week of the program(s) opening, in some cases a life or death distinction.
- Offered free advice to help those who were not our clients apply for the PPP Loan and EIDL. No upsells, no gotchas. Just advice from one small business owner to another.
- Discounted our fees to allow our clients to pay their team members, who desperately needed to keep their work especially as the unemployment rate crept up.
- Helped those workers who had to be laid off by our clients get the resources they needed to file for pandemic unemployment insurance, so that they could land on their feet
- Created a giant access to capital resource list and sent it out into the world so that everyone, not just our clients, could benefit from our collective knowledge
- Identified our clients at a high risk of failure and provided financial dashboards, forecasting, and budgeting services at no additional cost.
So! While we may not have $100 million lying around, we offer concrete value to our clients, 99% of whom we retained even in the face of a global pandemic and recession, and we continue to operate profitably despite dreadful market conditions. We do plan to continue to invest in our own technology (our development team is finishing work on some top secret stuff), but we will not take on a mountain of debt or sell out control of the company to do so. We also won’t sacrifice quality of service or the human connection in order to scale and line our own pockets. As a bootstrapped business we understand that every dollar counts and it is our responsibility to our clients and our team to do the right thing, even if that means to grow more slowly. We see this as a marathon, not a sprint; moving carefully has allowed us to remain competitive while embracing compassion and creativity.
For those small business owners interested in working with us, we would love to meet you! We laser focus on a handful of niches including fitness, legal, SaaS, managed services, and creative agencies. If we don’t work with your niche, we are happy to offer quality referrals, people that we trust will take great care of you. For those who are a good fit, and who are eager to make a fast transition to an accounting team that will be around for years to come, we are temporarily waiving our onboarding fees for former ScaleFactor clients.
As the founder of Accountingprose, I am living my best life and couldn’t imagine doing anything else. I love working with small business owners and helping to develop a team of accounting unicorns. Accounting can be hard work, but watching the people who rely on our team thrive is the greatest reward imaginable. Reach out today and mention ScaleFactor if you’d like to take advantage of this opportunity.