Scaling: How to Build a Strong Back Office Early with Bill Hollowsky

Randy Wootton (00:04):

Well, hello everybody. This is Randy Wootton, CEO of Maxio and your host, SaaS Expert Voices, where we bring experts to you to talk about what’s going on in the SaaS world today and what we might expect to unfold tomorrow. Today I’m joined by Bill Hollowsky, who’s the VP of accounting services at Kruze Consulting. What an incredible background you’ve had, Bill, we’ll get into that in a second. And then also, really excited about what you guys are doing at Kruze, which we’ll also talk about.

(00:30):

In brief, Bill’s journey, and please fill in, was started off in business office accounting at KPMG, worked in implementations at Oracle, has done consulting, product management at the US Public sector, federal and international e-business. Also worked at SunGard Data Systems, worked at some small start-ups and then has been at Kruze, recently, where he now, as I mentioned, oversees the accounting services. Working to help Kruze’s broader customer set of 800 VC-backed start-ups, of which about 600 are SaaS. Welcome, Bill, what an incredible background.

Bill Hollowsky (01:07):

Well, thank you, Randy. It’s been an incredible experience trying different things and testing out and just enjoying and learning and taking on the big hairy projects.

Randy Wootton (01:16):

Yeah. And you’ve got more certifications than anybody I ever met. You’re a CPA, you’re a CGMA, you’re a CITP and a CSPO. For those that don’t know, could you talk about what the CITP is, and the CSPO is, because it’s probably not as common in the financial or accounting world.

Bill Hollowsky (01:36):

Sure, absolutely. Actually, I just happened to see those credentials on somebody’s Zoom meeting and I stole them, and that’s how, no, actually, just kidding. So yeah, so CITP, it stands for Certified Information Technology Professional, it’s actually a designation granted by the AICPA. And it’s focused on understanding tools and technology around the accounting and finance and auditing areas. And then much of my career I spent in product management and software development, so the CSPO stands for Certified Scrum Product Owner. So when you transition from the old Waterfall methodologies into the Lean Agile, it really teaches all the tools and techniques and styles. And so it’s super credential as you’re moving to that Lean Agile methodology, so really cool.

Randy Wootton (02:22):

And I assume you’ve had lots of opportunity to apply that in the companies that you’ve worked with, in the product management component. And then I guess, even in this role that you’ve been in, the VP of accounting services and how do you move customers through the sales cycle and get them up and running? The Agile methodology is not just a product management methodology, it’s basically a workflow optimization process, would you agree? Or how have you thought about some of those, applying to your current role?

Bill Hollowsky (02:46):

Yeah, I would absolutely agree with it. It builds a great foundation in terms of thinking about being very lean and agile, breaking down the minimum viable if you will, story points and products. But when you apply that to, for example, the accounting side, we use it from a customer’s side, I mean, what technology stacks do we need to get them in? When you’re talking about small seed companies, a founder, maybe a CTO and two or three staff, how do you get them to think about moving fast on the accounting side, because these guys are growing and moving very fast on the start-up side, right?

(03:21):

On the other hand, as we apply it internally, we think about little tools and technology and we actually build some in-house custom software. So if we can do these little things to help us get more efficient, more effective, provide better client service, these methodologies really apply pretty cool. So rather than taking a big project, spending hundreds and hundreds of hours or thousands of dollars on it, try something small, fail fast, experiment, improve it, and then start to roll it out. So I absolutely agree with you, I couldn’t agree, yeah, anymore than that.

Randy Wootton (03:53):

And I think what’s interesting is, I have spent a little time at the AICPA, and I think one of the data points they share is, there’s about 60,000 CPA firms in the US.

Bill Hollowsky (04:03):

Yeah.

Randy Wootton (04:04):

Of which most are the long tail and they’re single proprietors and they’re managing the ice cream shop down the corner or something along those lines. You guys are really at the top end, I think you’re the number six fastest growing firm, by accounting today. You’re in the top 100 firms and top in the Western region, so you’re at a different order of magnitude. And as part of that, it sounds like what you’re able to do is build some of your own software, so you’re in a tech enabled service as much as a service provider. Can you share, like how many people do you have in your IT tech group, where you’re building your custom tools? We’ll talk about the tools that you recommend and implement, secondarily, but just how much of an investment does your leadership team see as needed to drive efficiency in the delivery of your services?

Bill Hollowsky (04:53):

Sure. So I’ll break it down to a couple approaches. What we do is we look for, if you will, best in market for off the shelf or COTS, right. So for example, we use Salesforce for our sales and marketing, and we’re actually implementing the service cloud, we use Zendesk. So we use some really great off the shelf tools, it’s rebranded at Kantata, it’s Mavenlink for project management and assignments and workloads. Then on the custom side, we build stuff that help us, really generate the financial packets. A lot of our deliveries, we have custom workflows behind the scenes, ’cause we do different levels of review by different staff to ensure that we’ve got, not only the proper attention and the focus on the data and the accounting, the categorization producing the financials and levels of review, so. But yeah, those are… From an engineering perspective, we offshore the engineering piece, we’ve got some fabulous folks in Europe. And I think it was, maybe 8, 9, 10 staff we involved out there in different projects. It goes up and down depending on if we’re doing something new or if we’ve decided to deprecate or end-of-life something.

Randy Wootton (05:59):

Yeah, I think that’s one of the things that firms will need to do, is learn how to leverage technology, either the off-the-shelf or build their own, and we’ll get into AI, in a little bit, of what’s playing out there. But then you also have, with your background experience, I think bring a very unique view to the tech recommendations you make for your 800 customers, those that are seed or even pre-seed to seed, to Series C, to D. Can you help us understand how you think about, not one solution, not one recommendation is going to fit all of those? Maybe for our listeners, are mostly in that, probably, Series A, Series B, how do you think about the set of tech? Do you say, “This is going to make the back office efficient so that you can grow your company and scale and be able to raise the money and go through the audits and get through the due diligence?” Or how do you think about that set of technology you recommend?

Bill Hollowsky (06:54):

Sure. So one of the first things that we do is, we want to get a good baseline. So for example, QuickBooks Online, we probably have about 97, 98% of our clients are in QBO, so it’s like one of our base, if you will. I wouldn’t even call it an ERP, it’s a GL with additional features, right. So it’s easy start-up, we’ve got, if you will, templates for chart of accounts for like B2B SaaS and FinTech, and we can actually roll them in pretty quickly. For some of our early companies, seeds and A’s, we might have spreadsheets, we might have Uncle Bob who did their books-

Randy Wootton (07:32):

Right.

Bill Hollowsky (07:32):

And you got it, right.

Randy Wootton (07:34):

Right.

Bill Hollowsky (07:35):

So it’s a whole cleanup, because we follow US GAAP, Generally Accounting Accepted Principles, right. And what we do is, then we look to see where they’re at and sort of when’s their next fundraise? How much have they, have raised already? And then do they have KTPIs? So for example, you need hire five people, 10 people, 20 people. So what we’ll do is, we’ll work with certain, like really great third-party technology vendors. So for example, on the payroll sides, we may recommend or we may say, “Hey, here’s the top four or five payroll providers we see start-ups using and working with.” But we have many start-ups that come to us already using payroll systems, the big ones, ADP, Paychex, Justworks, all those. So in those cases we’ll support those.

(08:20):

And then for other technology stacks we’ll look to say, “Hey, what are you doing for expense management? Are you using credit cards, right? What about treasury management?” Then of course, out of our 800 VC-backed start-up clients, believe it or not, which blew my mind, is about 50% of our start-ups actually are generating some form of revenue. Counter intuitively you would think, “Oh, maybe 90% aren’t generating revenue.” So out of those that are generating revenue, we’ve got Stripe, Shopify, we’ve got Apple Pay, Google Pay, Amazon, a bunch of those tech stacks. And if they aren’t already using one or very familiar and comfortable for the small ones, some folks, if you’re only doing one invoice a month, I’ve seen them use Word or Excel, we’ll get them into QuickBooks. But if you’re really focused on the B2B and SaaS market, we look for setting up products like Maxio, because what that does is, it builds the process, builds the procedure, gets them going. And then when you look at the start-ups, what they’re doing is you’re looking for a hockey stick growth, right, I mean, just that exponential-

Randy Wootton (09:21):

Yeah, that-

Bill Hollowsky (09:21):

2, 3, 4, 5-

Randy Wootton (09:23):

T2, D3.

Bill Hollowsky (09:23):

6, 7, 8 growth.

Randy Wootton (09:23):

Right? Triple, triple, double, double, double-

Bill Hollowsky (09:25):

Exactly.

Randy Wootton (09:25):

Right, yeah.

Bill Hollowsky (09:25):

Yeah. So in those cases, what we’ll do is, we’ll build a foundation with a technology partner that we know is going to let them grow and scale. Because we don’t want to put you on something and six months later when you’ve doubled, tripled, quadrupled in size, now you’ve got to change your platform, so it just doesn’t make sense.

Randy Wootton (09:41):

Do you have, on QBO, because a lot of our customers are QBO as well, ’cause they’re in that same space, they eventually migrate to NetSuite. About 90% of the people-

Bill Hollowsky (09:49):

Yeah.

Randy Wootton (09:49):

Who move GLs go to NetSuite versus Intacct. What size company do you find that to be, where they consider moving to NetSuite? Or is it an inflection point, like they raise a Series C and those investors really want them on NetSuite? Or is it a PE firm that says, “Hey, we’re going to buy you, but you got to go on NetSuite?” Because QuickBooks Online can be pretty robust and with tools, Maxio is one example of where we can help solve the multi-entity challenge and provide more governance-

Bill Hollowsky (10:17):

Yes, yeah.

Randy Wootton (10:17):

Multi-currency. But where do you find that break point, where someone would try to replace a GL?

Bill Hollowsky (10:24):

Yeah, generally it’s sort of, there’s not just a hard fast roll-

Randy Wootton (10:29):

Sure.

Bill Hollowsky (10:30):

But when you go into Series C and D, you’re raising 50, 60, 70, 80 million, and your KPIs say, I need to grow and scale real fast. The other areas, we have absolutely seen, “Hey, one of my lead VC investor says, I need to move.” Or at this point, they’re starting to hire in-house, they bring in a-

Randy Wootton (10:49):

Right.

Bill Hollowsky (10:51):

Maybe a vice president of finance, maybe a fractional CFO, and the CFO says, “Hey, where we’re growing right now and to hit those next milestones, we’ve got to migrate into the mid-market, little more robust system.” So we have a couple clients on NetSuite and a couple of clients on Intacct.

Randy Wootton (11:07):

Great. That was going to be the other question I had for you. So the technology, there’s an inflection point, often driven by the amount of money that’s being raised, the accountability, visibility-

Bill Hollowsky (11:14):

Yeah.

Randy Wootton (11:14):

And governance that the new investors want. On the services side, you oversee the accounting services and have order magnitude, about 40 assistant controllers, which is a great role to have. So it’s a step up kind of, from the bookkeeper to the person who’s actually going to manage the books, help you ensure that you’re getting your cash flows correct-

Bill Hollowsky (11:33):

Yeah.

Randy Wootton (11:33):

On accrual accounting. What happens when they do hire that CFO? I assume you still are able to provide audit services, but on the accounting side, are you augmenting that first CFO for some of those B2B SaaS companies? How does that relationship evolve as you get to that-

Bill Hollowsky (11:49):

Yeah.

Randy Wootton (11:49):

Series B, Series C?

Bill Hollowsky (11:51):

Sure. So yeah, great question. So a couple of thoughts around that. Yeah, we’re about 40 assistant controllers. Controllers, I probably have 15, 20 CPAs on staff. I’ve got CMAs, CFAs, you name it, the Campbell Soup of TLAs and credentials, right. What we do is, so we have a couple of different, what we call, successful exits. Successful, if you exit from Kruze is, I graduate in-house, meaning I take my accounting, I’m acquired, and so those are like really two great exits.

Randy Wootton (12:22):

Right.

Bill Hollowsky (12:22):

And what we do is, when you get to that certain size, we will highly recommend, “Look, the way you guys are growing and scaling, it’s time to bring on a fractional CFO.” We actually offer that, but with a big demand, we work with a lot of other fractional CFOs that do a phenomenal job.

Randy Wootton (12:37):

Right.

Bill Hollowsky (12:38):

In some cases they might be industry experts, they might bring on a controller. And what we’ll do is, we’ll actually support them in their learning process, if you will, training, work with them on their schedules, showing them what we’re doing. And then in many cases, like for example, we’ve had several clients acquired by some really big publicly traded firms like Apple, Cisco, Merck, Spotify, you name it, John Wiley & Sons, and Moody’s. What we’ll do is, with those acquirers, we’ll actually support all the accounting transition and functions until they’re ready to bring it in-house. But yeah, it’s a good relationship because what we’re doing is, we’re helping to set up the new folks for success and that nice transition.

Randy Wootton (13:17):

I think that’s probably one of the things that we hear from multi-time CEOs is, how much getting the back office right early, makes a difference. And so working with a partner, moving from your Uncle Bob, to a book paper, to a professional CPA firm, to what I would suggest, is an accounting firm that is focused on B2B SaaS. Because the 606 rules-

Bill Hollowsky (13:44):

Yes.

Randy Wootton (13:44):

When you move from cash to accrual and how you do your revenue recognition, how that impacts, for example, rolling down the order to cash? How that can be impacted by revenue leakage? Like having a group of people that really know this sector and have lots of experience doing it. And then you move to this next stage and what does that look like and when do you have to actually bring someone in-house? Can you save a little money and not have to spend that $250,000 on a CFO for a period of time, ’cause you have a great partnership?

Bill Hollowsky (14:12):

Exactly.

Randy Wootton (14:13):

And then clearly, as they move on, you work with those VCs and PE firms, they get to know you, they like to have your type of team on point. And so when they’re doing their early-stage investments, they make recommendations,.and so that industry-specific focus, I think, probably pays dividends for you.

Bill Hollowsky (14:29):

Yeah, absolutely, it really does. What it allows us to do is build that deep industry expertise, and so we can provide, if you will, the recommended platforms, we’ve got certain templates and processes and procedures behind the scenes. And then when you look at revenue recognition, complex topic, and typically when you go to BCD or you’re getting acquired or you’re doing a big fundraise, there are going to be audits, right. So by having the processes and systems and having the ability to show what you’re doing and how you’ve done it and have all the backup and data, is incredibly important. ‘Cause it just makes this fundraising so much more smoother, and then the questions become less, and then the books are in a great spot, you feel.

(15:17):

And if you think about it from the founder of the start-up perspective, it’s incredibly stressful. You’re trying to get that term sheet signed, you’re going through due diligence, you’ve got an acquisition possibly, right. Or, “Oh my God, I need that next big round and if I’m a mess, it’s a disaster,” right. So I think by working with firms like us, and there’s a lot of great firms out there, we give you that sort of sense of process procedure. We’ve had hundreds and hundreds of audits across the start-up community, for our clients, and you see everything. But you’re absolutely right, getting the tools, process, technology and really using the proper methodologies, I think, is fantastic. It just sets you up in a good spot so you can grow and scale, whether you’re going to IPO or you’re going to stay private, it just really builds that foundation.

Randy Wootton (16:03):

I heard someone, it’s actually an Atlanta-based law firm, but they’re national, and this has been reinforced by other folks, the number one deal killer is an accounting issue. And in-

Bill Hollowsky (16:13):

Yes.

Randy Wootton (16:14):

In B2B SaaS in particular, and it comes down to how you rev-rec and-

Bill Hollowsky (16:16):

Exactly.

Randy Wootton (16:17):

I did a short stint, two years, after I sold Percolate to Seismic, I stayed on as chief strategy officer, I was overseeing our M&A deals. We looked at a bunch of deals, we actually did two acquisitions and one strategic investment. One of the acquisitions was 10 times bigger than the other, the big one was on SaaSOptics, so all their stuff was in one sock in terms-

Bill Hollowsky (16:40):

Yeah.

Randy Wootton (16:40):

Of the data and the reporting and the ARR and the MRR roll forward and the cohort analysis. We ended up, for the other acquisition, which was one-tenth of the size, spending 10x the time and money on the forensics accounting, because they had-

Bill Hollowsky (16:56):

Yeah.

Randy Wootton (16:56):

Contracts in the filing cabinet. And so it just created-

Bill Hollowsky (17:02):

Yeah.

Randy Wootton (17:02):

A lot of uncertainty around the quality of the earnings, and they hadn’t gone through an audit. And so it really, as an acquirer, having stuff buttoned up with a partner who knows the space and a technology that works, again, to your point, just for the CEO and the executive team that’s trying to sell the company by doing the deep dive and the due diligence on the technology, the sales motion, the marketing, the customer success.

Bill Hollowsky (17:25):

Yeah.

Randy Wootton (17:26):

What you don’t want is, to be getting caught in your underwear around accounting issues.

Bill Hollowsky (17:30):

Oh boy, absolutely. Man, you’re spot on. And what’s interesting, when we do transition new clients to us, we do a KYC and due diligence, and we’ve seen some crazy stuff on the books and balance sheets. And so what we’ll absolutely do is go back and recast and redo and bring it up into standards. And in some cases, we actually offered to go ahead and amend taxes, so that everything is in sync and matches. And it’s really funny, so here’s a funny story, we have some very savvy financial, if you will, founders, right. We’ve got some that are these special research scientists and can’t spell debit or credit, right, and so it’s really hysterical. But we’ve got folks that, “Hey, here’s my revenue,” and they’re talking about bookings, not signed contracts, and they think it’s committed. They’re counting like, “Man, I’m going to do 10 million in revenue this month and next month and in the following month.” And you’re like, “No, you’re not.” And they’re like, “What?” And then they’re going to explain that to the board and the VCs, it’s kind of like-

Randy Wootton (18:26):

Oh, like, all right. Yeah-

Bill Hollowsky (18:26):

Yeah.

Randy Wootton (18:26):

It’s not something you want to do, as an English major, as myself, I just want smart finance people, the books are GAAPed right, like there’s no issue, it looks the same way every single month, but great. Well good, well, let’s transition, you had this great description of what was going on in the accounting and the start-up world. You called it, The catastrophization, maybe I said that, and we were talking about how it just seems like there’s one catastrophe after another. Which is impacting the way people are running their businesses, the way they think about getting capital, how they’re building things, the black Swan events, the Covid, the SVB.

Bill Hollowsky (19:01):

Yeah.

Randy Wootton (19:03):

Can you talk a little bit about your perspective of how this has been playing out over the last couple of years? Because God knows, I’ve been in the middle of it and it’s just felt like being a ship in the stormy seas and just getting blasted from the left and blasted from the right.

Bill Hollowsky (19:16):

Yeah, definitely. It’s been quite a roller coaster ride. So if you think about it, when Covid hit and when we were looking at our start-up base, it’s like, how many start-ups are just going to shut down and go? So we had founders that were doing, actually, in-person events, they were doing a lot of, if you will, physical stuff. And boy, what was interesting is, many of them had to stop and pivot and then the cool thing was, we saw the government step up and do a lot of funding, PPP loans and really helping the start-up markets, I mean, generally business, right. So being able to be very flexible and nimble and pivot. And one of the things I tell the team is, don’t panic, use the data. So for example, “Okay, oh my God, the world shut down, we need to furlough and fire everybody, right?” Well, no, stop, right.

(20:10):

What was churned last year? What’s happening this year? Is there funding happening, right? So you want to look at the metrics and the data, and then if you think about it, yeah, we go through these crazy events, right. So you go from Covid, you go to the PPP funding, and then we go into the SVB, the Silicon Valley Bank crisis, right. We had about, I think almost about half our clients were in Silicon Valley Bank, that whole week and that weekend we’re going, “What if our clients can’t make payroll next week?” So we’re working with all the other banks and behind the scenes, I mean, just working with clients. So it’s stepping back and keeping the focus on the clients and helping them. And we reached out to all the big banks and successfully helped them move their money, yeah.

Randy Wootton (20:52):

That’s great, ’cause I was actually in Sun Valley at the time of that and I was with some friends for a ski weekend when this SVB thing was unfolding. And I remember it was on a Thursday and was talking-

Bill Hollowsky (21:03):

Yeah.

Randy Wootton (21:04):

To my CFO, “How do we get our money out?” And Battery, a lot of their money was also in SVB, all of our money was in SVB. And it wasn’t like we were knuckleheads, it’s, SVB gave you great loans-

Bill Hollowsky (21:13):

Exactly.

Randy Wootton (21:14):

If you put all the money there and you did your checking with them and you had your credit cards with them. And so it was part of everybody, I think, especially, even though Maxio isn’t a Silicon Valley-based company, it’s based out of Atlanta, its orientation is Silicon Valley. And I think everybody in Silicon Valley was using SVB.

Bill Hollowsky (21:33):

Yeah.

Randy Wootton (21:34):

And I remember then, on Friday, we were like, “I don’t know what’s going to happen and we’re not going to make payroll on Tuesday.” But I only had to worry about one company, you had to worry about 400. So without getting into too much detail, how many were you able to help get funds over the course of the long weekend, from Thursday until Sunday when the government stepped in? Was it a couple of tens or was it a couple of hundreds or?

Bill Hollowsky (21:58):

I don’t have the actual numbers-

Randy Wootton (22:00):

Yeah.

Bill Hollowsky (22:00):

But we transitioned the majority of them to the big banks like JP Morgan, Chase-

Randy Wootton (22:06):

Wow.

Bill Hollowsky (22:06):

Bank of America. So I don’t think we lost a single client in that. Now, there was a lot of-

Randy Wootton (22:13):

Right.

Bill Hollowsky (22:13):

Sleepless nights and anxiety and panic, right.

Randy Wootton (22:16):

Yeah.

Bill Hollowsky (22:16):

And there was some clients who were like, “Why would I want to move my money now? Because it’s in the safest place there is. The government’s running, right?” But yeah, I don’t think we lost a single client to that whole process.

Randy Wootton (22:25):

That’s great.

Bill Hollowsky (22:26):

And that was a lot of work.

Randy Wootton (22:28):

Yeah. So actually, we didn’t move any money afterwards for that exact reason, we did open up accounts at some other banks-

Bill Hollowsky (22:34):

Yeah.

Randy Wootton (22:35):

And obviously SVB evolved and now they allow for those sort of things. But I do think it’s a very interesting lesson learned, we’ll all remember as a Black Swan event. The other one-

Bill Hollowsky (22:44):

Oh, yeah.

Randy Wootton (22:44):

You were talking a little about was the Web 3.0 crypto boom and bust, and how have-

Bill Hollowsky (22:49):

Yeah, yeah.

Randy Wootton (22:49):

You seen that play out through your client base?

Bill Hollowsky (22:51):

It’s really interesting, as crypto took off and then the Web 3.0 trends happened, of course, it became a really big, if I can call it a VC funding frenzy. But boy, folks were really writing checks into the start-ups that were impacting the whole market, which was really cool. So in a way, we had to become crypto and Web 3.0 experts very quickly. And if you look at the, so the GAAP, if you will, standards and methodology and the FASB codification, was very archaic. Because, “Oh, it’s an intangible asset, you just put it on your balance sheet,” and crypto goes up and down crazily, right. And so behind the scenes, we were working with different technology partners, experimenting with different ones, and then we were tracking what the FASB was doing and then just making sure we were adhering to the standards.

(23:40):

FASB actually has changed the standards, behind the scenes we’re working with all the, if you will, platforms that help all of the transactions and categorizations, because there could be millions and millions of token transactions coming in, right. And so it’s working with them, and then you saw the, sort of the winter, right? We’ve saw the SEC and the government come cracking down, and so when the VC funding starts to slow down, then you’re not seeing many new clients come in there, but is supporting the current clients that are doing business so that they’re pivoting. So that was, yeah, the crypto boom and bust was another one. We’re seeing in AI right now, I’d probably say, nine out of every 10 new clients we onboard, it’s probably got AI in their name, AI in their mission. And I’ve probably have seen 25, 30, 40% of our clients pivot and add AI into their mission, their products, their MVPs. So AI is now the biggest thing that’s happening.

Randy Wootton (24:32):

Yeah, I was CEO of a public company called Rocket Fuel, and it was up for a couple of years and all the people had done all the hard work before I showed up. But we had our own data centers, ’cause we were processing-

Bill Hollowsky (24:44):

Cool.

Randy Wootton (24:44):

So much data so quickly, and they were like the Cadillac of data centers, there were 20 something around the world.

Bill Hollowsky (24:49):

Yeah.

Randy Wootton (24:50):

We had 20 something models that we were updating, algos that we were updating every night. We had 30 data scientists and we were-

Bill Hollowsky (24:56):

Wow.

Randy Wootton (24:57):

We were in that first Gen AIs, I was there from 2015 to 2017, it was predictive, analytic using logistic regression analysis. One of the things we found, was in that first Gen of AI, you had lots of companies that would just throw AI in their name or they would talk about AI and-

Bill Hollowsky (25:11):

Yeah.

Randy Wootton (25:12):

And then it kind of became passe and like everyone’s sort of, “Oh, fufu, you don’t have any AI.” I do think this next gen of AI companies, most of them actually do have something that could be called machine learning or is leveraging large language models, I think. Are you close to them? Do you have a point of view in terms of the clients that you’re seeing and whether they’re real AI or they’re just wrappers on top of ChatGPT, versus having real systems of record of data that they’re layering intelligence on top? Or when you poke at it are they-

Bill Hollowsky (25:42):

Yeah.

Randy Wootton (25:42):

Are they really AI or pretend AI?

Bill Hollowsky (25:46):

Yeah. I definitely think there’s a combination. So for example, for some clients, what they’re doing is, they’re actually augmenting with AI, so they’re wrapping the chatbots and introducing new features and functionality. We actually have some clients that are true AI, for example, Perplexity is one of our clients that we serve, and it clearly is, just a big competitor. And what it does is it really does the, if you will, the sourcing, so when you ask a question or you need advice or help, it tells you exactly where it’s pulling from and what it’s coming from, right. So it helps to reduce, you can’t eliminate, but definitely reduce hallucinations.

(26:25):

But yeah, we’re seeing great uses in some really novel areas where folks are using the AI, for example, a couple of our clients are in marketing or entertainment and education, and they’re using those tools to reduce, basically, the cost of effort, the cost of sales, to actually build and deliver some of their services and content and features. So we’re seeing a lot of it, just really cool applications.

Randy Wootton (26:51):

I’m kind of putting you on the spot, going off script. One of the things I’ve seen around, through the CEO community, is a slide which says, “This is the AI efficiency expectation by function,” so-

Bill Hollowsky (27:03):

Yeah.

Randy Wootton (27:04):

For developers, for marketing, for sales, for customer support in particular, even G&A, each of those functions having a efficiency gain by using AI. What I’ve been arguing is, standby, that fiscal year ‘25, the plans we have to put in place, there’ll be a requirement from the private companies that are backed by VC and PE, to show the scale and leverage they’re getting from using AI tools, for those. So you don’t have to hire this many engineers, you don’t have to hire this many customer support folks, which is going to help drive overall profitability if you’re able to scale. Have you, across your customers that aren’t, I mean, you could have AI within your product, you’re selling that, but I’m talking more about augmented intelligence, augmented workforce. Are you starting to see that play into, okay, so now how are you going to change your budgeting and forecasting based on AI assumptions?

Bill Hollowsky (27:58):

Yeah, I think you’ve characterized it spot on, standby right now, where I still call it, in the early exploratory testing, MVP stage. And so we’re seeing a lot of different applications of it, but I haven’t seen a demand for metrics and commitments and KPIs against, “Okay, hey, because I’m using AI, I’m hiring three less engineers.” I haven’t seen that push yet, but man, I tell you, it’s going to be coming. I think that’s a great foresight, it’s going to be coming. And as you look at, I’m hearing predictions that we can get to one in two or three or four people companies, that do a billion dollars.

Randy Wootton (28:45):

Yeah, who’s the first company that goes-

Bill Hollowsky (28:46):

It’s like wow.

Randy Wootton (28:47):

Public with just executives? Everything else-

Bill Hollowsky (28:49):

Yeah, exactly.

Randy Wootton (28:49):

Is done through bots. I think that will be interesting. I’m glad I’m at the tail end of my career and-

Bill Hollowsky (28:55):

Yeah, likewise.

Randy Wootton (28:57):

Hopefully I can get done and ride my bike and don’t have to worry about it. But my son who’s going to go to college in the next year or so, is looking at computer science and I’m like, “Dude, this is the intersection of robotics and AI, you just got to be there or-“

Bill Hollowsky (29:10):

Yeah.

Randy Wootton (29:10):

“You’re going to be-“

Bill Hollowsky (29:10):

Yeah.

Randy Wootton (29:11):

“Flipping burgers.” All right, well good. Well, let’s talk about one last transition, I think, which I was really interested in your hiring philosophy. But to set the context around how you got hire at Kruze and some of the things that you’ve done differently to hire people who don’t panic, who focus on being stable. Is just this broader labor shortage that we’re seeing, specifically-

Bill Hollowsky (29:31):

Right.

Randy Wootton (29:32):

In the accounting area. You had provided some details in terms of, in 2017 there was 75,000 accounting graduates, in 2022, there was 62,000, that’s a decrease of 17%. Similarly, on the CPA side, you said in 2016 there was 48,000 and in 2021, only 20, or excuse me, 19,000 passed their CPA. That’s extraordinary.

Bill Hollowsky (30:04):

Absolutely. It’s been incredible. And current catastrophization in accounting and services and auditing, is this lack of skill sets coming in. And so there’s a lot of discussion around the barriers, so for example, the 150-hour requirement and then states require, for example, a year of working under a CPA or in a CPA firm to get the qualification or credentials. We’re seeing the declining graduation rates, so it’s actually becoming more and more of a, if you will, industry pressure. Now, I mean, a couple of thoughts for us is, we typically, we don’t hire right out of school, we have done it. But we’re looking for folks anywhere from one to two, three years experience, all the way up to very experienced controllers, fractional CFOs. But I think also too, by using the tech stacks, and I can really see AI starting to impact that where, “Hey, you know what? You’re going to be able to deploy the tools and technology and systems where you can do more with less folks.” And for us, we don’t compete against the big four, the really big ones in hiring.

(31:15):

And I think the other strategy we have is we’re a hundred percent remote, and so that really gives us back that edge. We used to have the edge prior to Covid, and then that edge went away, and now, when you’re seeing the demand of coming back to hybrid work, work hours, bums in seats in the office, some of our top criteria coming in, when we talking to candidates is, “Hey, are you truly 100% remote? Do I have to go anywhere and do anything?” And we’re like, “Absolutely, we are.” So that’s definitely a benefit, but I could see, for me, I think as the expertise declines, you use the tools and technology to basically account for some of that, and then you want to make sure that you’ve got the, if you will, the building blocks around that.

(32:02):

But yeah, it’s definitely been a challenge, but I think we’re in a special space. The start-ups and VC-backed, it’s pretty sexy, so we actually haven’t had a lack of applicants and candidates. I mean, we’ve been hiring and growing like crazy, like you mentioned, we hired over 62 people in 2022 across-

Randy Wootton (32:20):

Yeah.

Bill Hollowsky (32:20):

Accounting, tax, and sales and finance. We did 26 people last year, and year to date, I’ve hired 22, so.

Randy Wootton (32:27):

That’s great. So just double clicking on this a little bit. You talked about, in our pre-brief, that you used to hire for technical ability and now-

Bill Hollowsky (32:35):

Yes.

Randy Wootton (32:36):

You are hiring for desire and customer service orientation. There’s got to be some assumption of their accounting chops, right, you got to have the people that know.

Bill Hollowsky (32:46):

Yeah.

Randy Wootton (32:46):

And maybe that’s what you mean by technical ability, like they’re able to do the accounting. How did you figure out that you wanted to shift to this desire, motivation, grit and customer service orientation within in the firm that you guys are building?

Bill Hollowsky (33:01):

Yeah, I think it’s been sort of an organic process, it wasn’t really planned, it’s just a natural evolution. So at first we were hiring just super technical skills, we were looking for the credentials, the CPAs, you’ve been there, done that, you’ve been in the seat, you know what it’s like. And then you get the archetypes, the stereotypes of, well, accountants and bean counters, they’re engineers, you put them in the closet, they don’t like to talk to clients, right.

Randy Wootton (33:31):

Right.

Bill Hollowsky (33:32):

And then with the tools and technology coming in, what we’re finding is, there’s some really cool folks that have got some very different, if you will, bachelor degrees and backgrounds, maybe science, history, literature, art. But they found accounting and they love the numbers and they’re doing a phenomenal job and they have experience. And some go on to get a master’s degree in accounting, so we’re actually looking a lot broader and bigger.

(33:56):

And my philosophy is, I can teach folks technical accounting standards and skills and how to do things, but man, if you don’t have a desire to help people and service and just have that, if you will, customer service aspect, it’s so hard to teach and ingrain. So we’re leaning much more in that direction, and we use a couple of tools behind the scenes, like Caliper, and we used to use Predictive Index, which helps us, if you will, fit and mold and evaluate, at least to our style. Because if you’re in the standard corporate accounting office, you get your typical monthly closes, it’s a cadence, you do quarterly, you do your annuals, right. Well, in the start-up world, it is anything but that, and it is-

Randy Wootton (34:41):

Right.

Bill Hollowsky (34:42):

Every day, and we deliver statements every week, so.

Randy Wootton (34:45):

Right. So it’s a little bit of people you-

Bill Hollowsky (34:45):

It’s a little bit of a cycle.

Randy Wootton (34:48):

You’re trying to hire people where they have this strong adaptability-

Bill Hollowsky (34:52):

Yes.

Randy Wootton (34:53):

A flexibility, resilience, they’re okay with chaos, it’s those that can be in the whirlwind and they like that. They like the stimulation of that-

Bill Hollowsky (35:02):

Yeah.

Randy Wootton (35:02):

And they’re not overwhelmed by it. And I do think the stereotypical accountant is someone, “Well, no, no, I want all I’s dotted, T’s cross, I want to feel a real sense of control.”

Bill Hollowsky (35:10):

Yes.

Randy Wootton (35:10):

So how do you find someone who’s still very focused on the details and make sure that it’s right, but are okay with a little swirl? Talk a little bit about Caliper because I think you’re describing Caliper versus Predictive Index, I’ve used Predictive Index, but not Caliber. It helps you better assess candidates in terms of their willingness, their flexibility, their willingness to handle remote work and just their energy, what they were bringing. What was it about Caliber that really turned you on?

Bill Hollowsky (35:39):

Yeah. We found Predictive Index through one of our Vistage groups, Vanessa-

Randy Wootton (35:44):

Yeah.

Bill Hollowsky (35:44):

Who’s their CEO, and they were like talking about Predictive Index. Then we jumped into it, because I remember, I think I had six positions and literally we went through 800 resumes.

Randy Wootton (35:54):

Oh my gosh.

Bill Hollowsky (35:54):

It was the old manual way, right.

Randy Wootton (35:54):

Holy smokes.

Bill Hollowsky (35:58):

So then we started to… Oh yeah, this was back in 2019 and 20. So we were experimenting with different tools. We found the Predictive, and of course, when you’re interviewing and you’re going through the resumes, you’re having all that, not only, if you will, just bias, but subconscious bias, right. So we went into the Predictive Index, and what we did was we created job, if you will, job assessments, and we’re like, we want somebody who can do this. But what it didn’t take into account for, uniqueness of remote work, of the chaos and all these other variabilities, characteristics that we have in our market.

(36:32):

And so I’d say our success went up dramatically, and then as we were growing and scaling, we hired a VP of HR and Stacey Levin, she’s, “I’m an expert Caliper, I love it.” And she goes, “This is what we can do with it.” And so we just basically started it, there was some time last year and now we go through the process and we evaluate, yeah, everybody to the Caliper scores and what we think is the right fit for Kruze. So it’s a great new tool, we’re buying into it, and I’ve actually asked all my staff to take it so we understand where they’re at and what their, if you will, the strengths and weaknesses are. So it’s actually a great tool-

Randy Wootton (37:05):

Got it, so-

Bill Hollowsky (37:05):

To help us.

Randy Wootton (37:08):

So it does both on your applicant screening to get the match, so you in the job application, you could test for the certifications and the technical ability, but then you also have this kind of personality orientation values and beliefs. It sounds like-

Bill Hollowsky (37:23):

Right.

Randy Wootton (37:23):

You’re also using it internally, to-

Bill Hollowsky (37:25):

Yes, we are.

Randy Wootton (37:26):

Have all staff use it. I’ve been a big fan of the personality tests, the ones we’re using it. Everybody at Maxio is doing Insights, which is similar to DiSC-

Bill Hollowsky (37:36):

Yeah.

Randy Wootton (37:36):

Or rooted in Myers-Briggs. And I tell people it’s like a year’s worth of one-on-ones when someone takes the Insights profile and we have a chance to chat about how do we perceive the world and what our communication preferences are, and more importantly, how I’m going to piss them off.

Bill Hollowsky (37:50):

Exactly.

Randy Wootton (37:51):

Right. So Caliper does something similar, Caliper has that component as well, kind of that personality orientation-

Bill Hollowsky (37:57):

Yeah, yeah.

Randy Wootton (37:58):

And how you prefer to be communicated with, et cetera. Yeah, I think those things are great. It’s just software and accounting, obviously, is a people business and people-

Bill Hollowsky (38:07):

Yeah.

Randy Wootton (38:08):

Is based on relationships. And so how do you establish trust, build trust? How do you facilitate communication? How do you try to prevent bad assumptions to make the machine work better?

Bill Hollowsky (38:18):

Absolutely, yeah. And if you think about the cost of a hiring mistake, boy-

Randy Wootton (38:23):

Yeah.

Bill Hollowsky (38:23):

It’s hundreds of thousands of dollars depending on how quickly and how long. And we spend a lot of time and effort to train, because the start-up market is unique, there’s a lot of new terms that many accounting folks didn’t know or weren’t aware of. Safe notes, right, venture debt, you name it, I mean, it’s really crazy stuff that it’s a whole new lingo, if you have to learn.

Randy Wootton (38:45):

Right.

Bill Hollowsky (38:46):

So.

Randy Wootton (38:46):

Yeah. And I think what you’re pointing to is just, you spend all this money to hire someone and then you spend all this money to train, I mean, it’s probably a year before they’re even starting to do the payback in terms of value add versus the mentorship. Before we go to the final round, that was one of the questions I had for you, in terms of-

Bill Hollowsky (39:02):

Yeah.

Randy Wootton (39:02):

This remote first work, I think in your professions, the professional services, law, accounting, I’ve seen this at banking and VCs, a lot of those firms are requiring everyone to come back into the office.

Bill Hollowsky (39:13):

Yeah.

Randy Wootton (39:14):

Because they think it’s critical to the mentorship. So do you have a secret in terms of how do you enable the mentorship in a remote type environment, where you take someone who may know some basics, but they really need deep mentorship to build the capabilities and experience to be effective?

Bill Hollowsky (39:31):

Yeah, we’ve actually implemented a mentoring program. So when we bring somebody on new, we actually have a mentor from a different department that acts as their, if you will, corporate onboarding buddy. And that goes for a period of maybe a couple of weeks, a couple of months, showing the ropes to everything. And then depending on the team, like on my team, I actually have a direct peer-to-peer mentor. We actually assign a mentor where that person can understand the accounting flow and what we’re doing, how we’re operating our process, procedures, our systems, and ask all those dumb questions. So they feel like they’ve got somebody who’s right in the seat alongside of them, so that’s really helped us tremendously. But like you mentioned, it’s a big time and investment, but boy, those things we do early on, just pay back tremendously, I think, in the long run.

Randy Wootton (40:19):

Yeah, I think having a very thoughtful onboarding process. Like people will remember their first day and the last day at the company, right. They remember the friends they had and the bosses they hated, right, that’s kind of the dynamic. And so if you can make that wow moment-

Bill Hollowsky (40:29):

Yeah.

Randy Wootton (40:30):

In that onboarding, where they feel like you’ve made a bunch of an investment, they feel like they have some friends, they have people they can talk to other than their boss. I think that is probably one of the biggest keys to that remote work. The other one is do you bring in people together periodically, so they can still have that-

Bill Hollowsky (40:44):

Yeah.

Randy Wootton (40:45):

Kind of in-person connective tissue?

Bill Hollowsky (40:46):

Yeah, what we’ve done is we do an annual offsite, where we bring the whole team together.

Randy Wootton (40:52):

Yeah.

Bill Hollowsky (40:52):

And we’re probably 60/40, if you will, US-based full-time and contractors, and we’ve got contractors all over the world, seven or eight or nine countries. Australia, the Philippines, Costa Rica, Trinidad, Canada, Europe. And so what we do is, for our contractors, “Hey, if you’ve been with us two years and you’re working more than 30 hours a week with us, we’ll fly you in and pay all your expenses and bring you to the offsites.”

Randy Wootton (41:18):

Oh, that’s great.

Bill Hollowsky (41:19):

And that really builds some phenomenal, if you will, loyalty and just team building, so we do that.

Randy Wootton (41:24):

Totally.

Bill Hollowsky (41:25):

I’d love to do it more, but-

Randy Wootton (41:27):

Yeah.

Bill Hollowsky (41:27):

With the workflow, it’s tough. I think with the-

Randy Wootton (41:29):

Yeah.

Bill Hollowsky (41:30):

The remote work too, what was really profound, I was chatting with our VP of HR and she goes, “You know what the remote work does, it actually helps level the playing field for folks with disabilities.” And I’m like, “Wow.” It’s kind of like no-brainer, but boy, she reiterated that and I thought, that really gives folks a chance that, maybe, can’t get into an office or don’t want to or have a challenge to actually really do phenomenal work. And so I thought-

Randy Wootton (41:55):

Yeah.

Bill Hollowsky (41:55):

That was really just a reminder of… Just real profound reminder.

Randy Wootton (41:59):

That’s great. Yeah, one of the advantages of this whole new model. Well, congratulations on your success, Bill. Before we close, I’d love to do our little speed round, which there’s three questions, what’s your favorite metric and why? What’s your favorite book? Doesn’t have to be a business book, be any book. And who’s the influencer that you’re finding most compelling? He or she is writing stuff that you’re reading or the podcast you’re listening to. So with that, what’s your favorite metric?

Bill Hollowsky (42:25):

Oh my gosh. Well, I look at all kinds of metrics, from all angles.

Randy Wootton (42:31):

Right.

Bill Hollowsky (42:31):

So probably, right now, if I look at it from my role, I would say it’s, revenue per employee. So that’s really-

Randy Wootton (42:39):

Okay.

Bill Hollowsky (42:40):

A big metric I look at. And I also look at it for benchmarking against other peers that are in the client advisory services space, so.

Randy Wootton (42:51):

Got it. So for you, specifically, in terms of your company, using it as a revenue employee, do you also use it for your clients in terms of helping understand the leverage they’re getting out of their employee base?

Bill Hollowsky (43:05):

We don’t per se, look at the client’s revenue per employee. From our perspective, we look at their complexity, their growth, their fundraising. So we look at different metrics as I apply, if you will, the Kruze services to those companies. But yeah, we just haven’t focused that on, from a client perspective, but there’s a ton of data available on that, and I think-

Randy Wootton (43:27):

Yeah.

Bill Hollowsky (43:27):

I think maybe even you guys might have some of that.

Randy Wootton (43:30):

We don’t have the revenue per employee, our friend Ray Rike, for the-

Bill Hollowsky (43:34):

Wow.

Randy Wootton (43:35):

Benchmarkit Survey does, and that’s a self-reported through his surveys.

Bill Hollowsky (43:39):

Yeah.

Randy Wootton (43:39):

And so people have to give the right number. I would say the big thing that changed, for me, going from VC to PE was, I was super focused on revenue per employee or ARR per employee at a VC company-

Bill Hollowsky (43:51):

Yes, yeah.

Randy Wootton (43:51):

While still important at a PE company, what they’re focused on is cost per employee.

Bill Hollowsky (43:56):

Yeah, oh-

Randy Wootton (43:57):

And how do you drive that down to the bottom line? So it’s been a rude awakening in terms of how to think broadly about how to build businesses in different markets, in different roles and the shape of the company in terms of senior employees versus junior employees, growing your own. So it’s led to a very, not very different, but a different way of viewing, what is the most expensive asset-

Bill Hollowsky (44:18):

Yeah.

Randy Wootton (44:19):

At SaaS company, 65 to 70% are people costs, and so-

Bill Hollowsky (44:23):

Yeah. That rude awakening-

Randy Wootton (44:24):

That was my rude awakening. All right.

Bill Hollowsky (44:26):

Services like us, I mean, it’s 60, 70, 80%-

Randy Wootton (44:28):

Oh, yeah.

Bill Hollowsky (44:29):

Because it’s all-

Randy Wootton (44:30):

Sure.

Bill Hollowsky (44:30):

Staff, right? Yeah.

Randy Wootton (44:31):

Yeah.

Bill Hollowsky (44:32):

Yeah.

Randy Wootton (44:33):

Favorite book?

Bill Hollowsky (44:35):

Ooh, favorite book. Well, I love all the big authors. Christensen, for example, I love-

Randy Wootton (44:40):

Yeah.

Bill Hollowsky (44:41):

The big books around Jim Collins and Carnegie.

Randy Wootton (44:44):

Yeah.

Bill Hollowsky (44:44):

So the-

Randy Wootton (44:46):

Yeah.

Bill Hollowsky (44:46):

The one, most recently, that I thought really just kind helped me, it’s called, Setting the Table, by Danny Meyer. So he was the founder of Shake Shack and some-

Randy Wootton (44:57):

Oh, I’ve heard of that.

Bill Hollowsky (44:57):

Great restaurants.

Randy Wootton (44:57):

Yeah, yeah.

Bill Hollowsky (44:57):

Yeah, yeah.

Randy Wootton (44:58):

Yeah.

Bill Hollowsky (44:59):

He really talks about the need for client service and high quality and high expectations and team building. So we’re actually doing a book banter, what we’ve done is, we’ve told our employees, “Hey, if you get the book and you provide a one-page summary.” So every week for the next couple of weeks, you in a couple of chapters and we share our thoughts, we actually provide them, we buy lunch and we’re like, “Hey, we’re having a book banter lunch.” So it’s a great learning and sharing experience, so that’s really one that’s just very recent. But man, I got a ton of favorites, my bookshelves are full and my Kindle’s full.

Randy Wootton (45:32):

Yeah.

Bill Hollowsky (45:32):

But-

Randy Wootton (45:32):

That’s-

Bill Hollowsky (45:33):

That’s probably a recent one, yeah,

Randy Wootton (45:36):

That’s a great one. Have you ever heard of, I think it’s called Be Our Guest, which is tied to the Disney. I’m looking it up as I’m doing this, but it’s-

Bill Hollowsky (45:45):

Be Our Guest.

Randy Wootton (45:46):

Be My Guest or Be Our Guest. And-

Bill Hollowsky (45:46):

Okay.

Randy Wootton (45:46):

It was a great book on client service, we used it when I was at Microsoft. And then we actually went down to Disney Institute in California, ’cause I used to run client service team, brought the entire client service team down there and go through an experience of how do you create the type of experience that Disney does for all of its guests. So I think that’s a great one, I’ll take a look at Setting The Table as well.

(46:08):

All right, final question for you, Bill, then you’re off the hook. Your favorite-

Bill Hollowsky (46:12):

I hope.

Randy Wootton (46:12):

An influencer, is there someone you’re reading or watching or listening to that you really like, who’s thinks, or you’re providing new insights?

Bill Hollowsky (46:20):

Yeah. Well, I’ll give you two or three here, sorry to overdo it. That’s my nature, I always overdo it.

Randy Wootton (46:26):

Absolutely.

Bill Hollowsky (46:27):

Because we do all things-

Randy Wootton (46:30):

No, you’re over exceeding.

Bill Hollowsky (46:30):

We do all things start-up. One of the podcasts that I listen to is, it’s called This Week in Start-ups by Jason Calacanis, prolific VC investor. And if you want to know anything about the VC market, funding, raising funds, due diligence, and both from the founder perspective, but from the VC perspective, phenomenal podcast. I tell you-

Randy Wootton (46:51):

Okay, great.

Bill Hollowsky (46:51):

Who’s hysterical, is Jason Staats, he does Jason Daily. He is hilarious and pragmatic and he talks about accounting firm issues and stuff. He’s actually done a lot of work in AI, he’s-

Randy Wootton (47:01):

Okay.

Bill Hollowsky (47:01):

Testing out different use case scenarios, I love him. And then I really enjoy, it’s called The Accounting Podcast, it’s Blake Oliver and David Leary. And they talk about all of the current accounting news, roundup industries opinions. And they’ve been beating the drum on the declining CPAs, the weakness in the talent, and the 150-hour. So a couple of big ones that are related and some favorites, Ron Baker and a few others, but that’s all. Yeah, sorry for the overload there, but I listen to these [inaudible 00:47:33].

Randy Wootton (47:33):

No, that’s great, yeah. The downside to this podcast is I end up buying these books and then adding these podcasts to my list, and so just like I’m falling further and further behind. But I appreciate your recommendations and I appreciate more the fact you were able to spend some time with us today. Bill, it’s always fun to catch up and best of luck in your continued journey.

Bill Hollowsky (47:53):

Fantastic. Randy, thank you for inviting me, great podcast and great partnership we have here, so thank you very much.