Marcus Wagner, CEO of AcctTwo, Shares His Experience Growing a Middle Market Business and Serving Middle Market Clients
Middle-Market Executive host and producer Jack Sweeney was kind enough to invite me to contribute a blog post to expand on some thoughts I recently shared as a guest on the Middle Market Thought Leader podcast. To give a little background, AcctTwo works with middle market companies to help them grow by removing the obstacles they face as they get some girth. We do this through a combination of technology and services. The technology that we provide is a software-as-a-service or cloud-based enterprise accounting solution. Our services are an extension of that technology, where we outsource either pieces of the finance and accounting function or, in some cases, the entire finance and accounting department.
Founded in 2010, AcctTwo was spun out of a midsize Houston CPA firm, is now fully independent, and has grown from three employees to more than 40 in the last five years. We had to learn quickly and early on that to be successful in the new world of subscription-based software and services, you have to focus on customer success- because we have to renew that business every single year. We measure customer satisfaction in a number of different ways and in a number of different areas of our business. We have become fanatically focused on customer satisfaction.
The Freedom and Stress of Self-Financing
Our rate of growth has thrown some obstacles and challenges in our way. I decided to self-finance and bootstrap the company using my own resources and my own time. We have actually never, at this point in our life cycle, gone out and raised any growth capital. That’s not for the faint of heart. It causes you to beg, borrow, and steal whatever you can get your hands on in those early days. Certainly being able to grow without the strings that are attached to venture capital or private equity money gives you a lot of freedom. But again, it can also be stressful.
Aha Moment: The Pitfalls of Reactive Hiring
One thing that I would do differently is to be less reactive in our hiring. You tend to want to hire people when the revenue demands it or when the cash flow can support that extra headcount. This leads you to sacrifice quality for availability. If you hire five people in a month, that is a lot of distraction to onboard them, train them, get them incorporated into the culture, and get them set up with the technology they need. The goal should be to decouple your hiring plan and your recruiting plan from your revenue forecast. I would recommend developing a 24-month recruiting strategy that allows you to hire people when you find the best ones, instead of hiring when you need them.
Cash, Lines of Credit, and Fundraising
Cash is always an issue for any company, and what I have learned the hard way is that the bigger you grow and the faster you grow, the more cash you need to continue that growth. When we first started out, I thought, well once we get to X million in revenue we will be a big company. Cash won’t be an issue. Not true. To grow 50% off a $5 million base requires a heck of a lot more cash than to grow 50% off a $1 million base.
Therefore, we are developing some key banking relationships. We have secured a line of credit, which enables us to absorb some of that working capital variability, and we are now looking to embark on our first round of fundraising. We are planning to establish an advisory board of 2-5 individual investors that are experienced in our industry so that we’re getting not just equity money from them, but also some strategic advice and contacts.
Alongside that equity, we plan to raise some debt. Banks like to lend money alongside well-qualified equity investors that are validating the story of the company.
One use of these funds is to look for potential merger candidates or acquisition candidates, but I think the important thing is that they have to share our culture. They have to share our focus on customer success and satisfaction. They have to have the same level of expertise, or maybe an incremental complementary level of expertise in a technology that fits into our overall service offerings.
Aha Moment: Too Focused on Recurring Revenue
A last thing to mention is that we’ve been sort of fanatically focused on building a recurring revenue stream and, in a way, we de-emphasized the one-time revenue associated with consulting or implementation services. And what we found, as the marketplace has grown, is that our expertise and our team’s expertise in implementing, customizing and integrating that technology is extremely sought after.
Marcus Wagner is founder and CEO of AcctTwo, a consulting firm and provider of cloud-based financial management solutions for challenges unique to oilfield/environmental/industrial services, midstream oil and gas companies, faith-based organizations and software companies. Click here to connect with Marcus.
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