• Levi Morehouse

The Cloud Accounting Inflection

Exponential inflections power massive breakthroughs. They resemble waves with a giant gathering force.

~Mike Maples, Entrepreneur & Investor


When I started Ceterus in 2008 to provide done-for-you accounting to SBEs, the cloud was already here. My very early tech stack for clients was QuickBooks Online, Bill.com, Paycycle (now Intuit Online Payroll), and Expensify. Let’s not forget remote meeting capabilities, either. Webex and Sykpe were highly functional in 2008 but they were primarily used for large group meetings and remained fringe tools for one-to-one communication.


While these technologies have all vastly improved in the twelve years since, the core functionality and usefulness was 99% available back then.


If you had asked me in 2008 how long it would take for the majority of SBEs to move their accounting to the cloud, I would have said five years. Well, here we are twelve years later and the most recent data shows that only about twenty percent of SBEs currently operate in the cloud. An astounding percentage still rely on desktop software, spreadsheets, or literal shoeboxes of receipts.


In spite of dramatically miscalculating the speed of adoption, I have never wavered from my belief that all SBEs will, eventually, utilize cloud accounting. So what will it take to make this way of doing business ubiquitous?


The Four Inflections


Remember when I told you I started reading business books in my late teens as I was exploring the idea of entrepreneurship? Many years into business, you can still find me listening to podcasts and reading the latest from thought leaders in venture capital and innovation. One such thought leader is legendary technology investor Mike Maples, whose ideas on breakthroughs have offered interesting context as I think about the future of accounting. Maples writes about the four potential inflection points (Technology, Adoption, Belief, and Regulation), and why every breakthrough in the way people and businesses interact requires the convergence of more than one of these inflections.


I started this post talking about the state of cloud accounting technology in 2008 because it illustrates why we need more than one inflection to happen concurrently in order to support a true breakthrough in the industry. This concept is even more relevant as we navigate the impact of the COVID-19 pandemic.


Here’s a closer look:


Pre-Coronavirus (2008-2019)


As mentioned above, cloud accounting tools already existed pre-Coronavirus. In terms of the four inflection points needed for a breakthrough, we’d already reached the technology inflection by 2008.


The adoption of this technology steadily increased from 2008 to 2019. At that pace, I believe we would have arrived at full-cloud accounting for SBEs in another 10 years. Instead of a clear and dramatic adoption inflection, the past decade saw a gradual migration to newer, better technology.


The belief inflection was moving along lock-step with the adoption of cloud technology. Those who actually used cloud technologies became believers, and sometimes evangelists (see David Leary). Entrepreneurs themselves appreciated the move and wouldn't return to the pre-cloud days, but they weren’t necessarily passionate enough about the new tools to heavily promote them. The accountants who served these entrepreneurs were, in most cases, reticent to change. While there were certainly some early adopters, the majority of the industry was so embedded in long-established processes and existing desktop software that a technology inflection alone wasn’t enough impetus to change.


Sometime between 2008 and 2018, the belief inflection within the accounting profession began to shift from skepticism of the cloud to seeing it as inevitable. Even so, inevitability still wasn’t enough to lead to industry-wide adoption.


Throughout this entire time, the discussion around cloud accounting never really experienced a regulation inflection point. While taxes and accounting are certainly regulated, the software model for bookkeeping and financial reporting was not impacted by any of those regulations.


Enter Coronavirus (2020)


The COVID-19 pandemic dramatically impacted all three of the non-technology inflections nearly at once. Shelter-in-place regulations moved accounting firms and their clients to fully-remote overnight. This shift led to an incredibly rapid adoption of the cloud technologies required to support remote operations. This adoption — and sustained weeks of conducting business away from the office — led to the belief that professional accounting services can, in fact, be done fully remote and in the cloud. Suddenly, a huge number of accountants and entrepreneurs not only realized this “new” way of doing business was possible, but that it is, in many cases, better.


Coronavirus didn’t spawn new technological advances in cloud accounting (as we know, the tools already existed), but it did radically accelerate the move to cloud accounting. In essence, it caused three of the four key inflection points to happen concurrently (a regulation inflection led to an adoption inflection, which led to a belief inflection), leading to an industry-wide breakthrough.


Summary


The Coronavirus pandemic has - unexpectedly and rapidly - driven cloud accounting to hit multiple inflection points. I anticipate that adoption of cloud-based technologies will move very quickly over the next year and it won’t just be a short-term change. As businesses get back on their feet from the economic crisis, they will expect and demand cloud-based accounting and remote communication from their professional service providers.


To use another sports analogy, now is the time to move to where the puck is going (as Wayne Gretsky famously operated). The accountants and firms who are there when it arrives will benefit extraordinarily.


Some of you may already be on-boarding your teams to new software. Others may be hesitant to shift to cloud technology because you fear it means less personal service. Whichever camp you’re in (or if you’re somewhere in the middle), being ready for the so-called puck isn’t just about adopting new tools. This pandemic is dramatically changing how service providers operate and the future will actually require you to be more personal and more unique.


Your “business therapist” skills will be in-demand at an all time high - so let us help take something off your plate. Contact us today to learn more about how we can augment your tech stack so you can focus on your business and clients.



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