Suddenly, the Back Office is Sexy

February 16, 2015

By Dennis Kneale

 

In the annals of innovation, inspiration can emerge from frustration. For David Barrett, it came a few years ago after the “scarring experience” of a clash with vexing, outdated back-office software.

He had just joined Akami after the company acquired a startup he had formed with Uber co-founder Travis Kalanick, and Barrett had to use an Oracle system to file his travel expenses for the first time.  He and five co-workers had just returned from a month-long trip to India, and everyone so dreaded filing their expense reports that he bet on an arbitrage:  Barrett bought everyone else’s receipts for 80 cents on the dollar, then sat down to begin entering details from more than a hundred pieces of paper.

Cue obtuse interface, bugs, broken web pages, reloading and starting over,  again and again.  “An absolute nightmare,” Barrett says.  “I was horrified.”  The filing took him over a month, he lost receipts in the interim, and he ended up losing money on the deal.  “It was an awful investment for me, but the experience was so scarring.  There is no reason this needs to be this bad.”

And a star was born: Expensify.com, which lets you use your smartphone to click a photo of a receipt and then throw away the slip of paper; the software does the rest. Barrett founded his firm in 2008, with the slogan “Expense reports that don’t suck!” and today has 2.5 million users at 300,000 businesses (and 8,000 paying corporate accounts). It processes $2 billion a year employee reimbursements.

“Oracle was the inspiration for Expensify,” Barrett says. “Nothing had changed in the industry for, like, 20 years, literally. Since the dawn of the Internet! That entire space was just as bad as Internet one-point-oh (1.0).”

Expensify is one of half a dozen new players that will pitching a back-office revolution to investors at the Montgomery Summit, sponsored by Macquarie Capital and set for March 10-11 in Santa Monica, Calif. I’ve been talking with some of the CEOs, and, fittingly, they sound like revolutionaries, outraged by customers’ “pain” and aiming to “free” employers from outdated software and “empower workers” with information.

It’s about time. The back-office is the backwater of tech, left behind by the Internet revolution, neglected for years by venture investors, dominated for decades by big, bloated, painful-to-use software made by big, bloated companies that are resented, feared and dreaded by the customers they serve.

There, I said it. Sorry guys, someone had to.

Now, back-office software suddenly is sexy. A new breed of cloud-based upstarts is bringing the back-office into the 21st century, fundamentally altering boring business housekeeping tasks with software that is elegantly designed, consumer-inspired and deceptively easy-to-use. Small and mid-sized businesses now can get high-quality, sophisticated tools only Big Business could afford.

“We’ve seen a massive wave in the past few years of ‘Consumerization of the Enterprise,’” Barrett says, “and we just happen to be perfectly timed to ride this wave of massive employee empowerment.”

Another presenter at the Montgomery Summit: ZipRecruiter, which says it is the largest sender of “job alerts” in the U.S. Each day it pelts 10 million job-seekers with the 20 best matches for each, culled from jobs at 500 sources. “We can put you on 50 job boards at once,” says CEO Ian Siegel.

Hired.com is a Tinder for Techies, and it also is presenting at Monty. It grew out of horrible experiences its founder, Matthew Mickiewicz, had in hiring engineers via recruiting firms. “Back-office is stuck in the Stone Age,” Mickiewicz says. “My experience dealing with recruiters was fear-inducing, almost. It was almost comical.”

At one point in an earlier job, a recruiter sent him an invoice for a $40,000 fee, plus this: “A six-pack of donuts as a ‘thank you’ for doing business.” That’s all? “Absolutely ridiculous,” he says. “We can do so much better.”

Recruiting firms deploy armies of salesmen who peddle programmers to the likes of American Express, Visa, Boeing, and charge a 45% markup. “We do the opposite,” Mickiewicz says: The worker, not the employer, gets the job pitches, matched to his personal skills and carefully culled from some 1,800 companies that use Hired, which takes only a 15% cut.

When a hire happens, instead of sending out doughnuts, Hired.com sends a bottle of Dom Perignon to the employer and a second one to the new hire—who also gets a $2,000 bonus from the site, taken from its fee
of $19,000. Hired.com did its first fundraising round last year, and did a second round seven months later—at a four-fold increase in valuation, to $200 million.

ZenPayroll treats the “underlying pain,” as CEO Joshua Reeves calls it, of small companies struggling with 15,000 different tax codes in the U.S. Even today, 40% of smallbiz owners still do this manually, and every year, government fines one-third of the six million U.S. businesses with a payroll for doing it incorrectly, Reeves says. “It doesn’t have to be that way. One of our main goals is we’re gonna fix that, those fines.”

He says this revolution is for “the rise of the employee, and the rebalancing of power in the back-office.” ZenPayroll also lets workers use a lifetime, virtual dashboard to access to their own data on taxes, exemptions, etc., affording them mobility as they cycle through an average of seven companies in their careers. “Payroll is more about people not payments. Getting paid is a special moment to be part of, people love to get paid.”

At Bill.com, the aim is to disrupt the mundane task of payables and receivables, as old as capitalism itself. “What PayPal did for

P2P, we’re doing for B2B, says CEO Rene LaCerte. He says 65% to 80% of all payments in the U.S. still are paper-check-based, and it galls him. “This makes no sense, that we still have paper checks all over the place.”

Some 600,000 businesses now use Bill.com to make $19 billion a year in payments, and their ranks have been doubling every year. Users like it so much they log in on an average of twice a day. LaCerte visits top-ten banks hoping to partner, showing them he has “X thousand of their customers paying us Y dollars, and they drop their jaws and say, ‘Omigod, that’s fee income we could have had,’” he says.