Franchise model for independent VARs and CPAs


A franchise organization could be viable with as few as 5 or 10 CPAs, organized around provision of hosted accounting software and related services.  This would not be the first time a group of accountants pooled resources to fund a hosting center. Developments in the accounting software industry make this a different proposition than past years.

I am totally serious about this and ready to participate in such a venture, if joined by other CPAs and software engineers interested in this. There are some highly competent individuals who are visible on usenet and on web discussion forums and mailing lists, and obviously, many more numerous individuals who are not visible in open discussions on internet.

The business plan I have in mind, would be to leverage our visibility and names to start a company. First we would discuss and agree on a single, clear objective, business strategy, and message.  Then we would execute it. Perhaps something along these lines:

Phase 1. Develop a business process which performs research and analysis, provides technology and knowledge to CPAs and other service providers in exchange for money (such as down payment plus recurring franchise fees).  It is going to take a lot of work to identify emerging standards for e-payments, XML schemas and DTDs for accounting, EDI interfaces, and other hard problems of interoperating with existing systems and emerging BSPs (business service providers) on the internet.  We ourselves would be the first members of this franchise or LLC or JV.  The franchise LLC would be the basic financing vehicle to aggregate the resources for directed research, and its members would be the customers receiving the results.

In other words, you join the franchise, you vote on what research is necessary, you are hit with a big account payable. If your qualifications permit, you can work it off by performing the research.  Other members will perhaps earn credit by admin, hosting, or other work.

Phase 2.  Obviously the venture would have to implement a website to present its idea, inform potential franchisees, persuade them to join, and yes, collect payments from the franchise members.

The venture would also need a web-based infrastructure for communication and collaboration among its members, for both the management issues, and software technology discussions.  Obviously there would be discrete projects within this collaboration platform, each having as minimum components 

Phase 3:  Establish a business model for operation.  Whatever our business model is, we should continually research and adjust our model to ensure the model is workable. for example I described a company in #1 above which is basically a knowledge and standards clearinghouse. 

To be successful, the franchise would require hardheaded management, and the employees or partners would have to be highly productive. The business model would have to learn to identify problems, identify people to solve them, establish deadlines and success criteria, and pay the workers real money.

Phase 4. I presume the venture would eventually build, buy, or lease the powerful webserver-based accounting software that we all know is possible and just over the horizon.

BUILD - I honestly believe that we might be able to build it ourselves, given the programming talent available in this country and our above-average ability to define the specs and priorities.  If so, the venture might establish a secure network presence for distributed development of webledger software. 

One way to do this would be collaboration with open source projects such as Linux Kontor, GnuE, SQL-Ledger, WebAccountant, etc.  All of these projects are full of very talented software developers, and lacking in accounting domain experience.  There is a very attractive return on investment, under a scenario where the venture might hire a developer, who would learn and contribute to the development as a key developer, then become a technical resource to the other franchise members.  He could travel, and implement the software under hourly rates to our clients, or to a small number of hosting centers.

BUY - The venture might, after discussion, establish a host for commercial web-enabled G/L itself, if appropriate accounting software can be licensed cost-effectively from an existing vendor.  There are open-source packages such as Linux Kontor, low-cost packages Integral Accounting, and midrange platforms, obviously including AccPac, Great Plains, etc.  At least one CPA is running Visual Accountmate behind a custom Web front end basd on West-wind.

LEASE - Our members might do very well as branded front ends, for one or more service providers like NetLedger or BizTone, who both have various co-branding and affiliate programs for independent CPAs, ASPs, VARs or accounting services. (NetLedger already serves large franchises such as Century.)

Two years ago I recommended waiting to evaluate Biztone, NetLedger, SecuredBooks, etc. as they light up their competently run webledgers.  That has happened.  It's done.  Our franchise would test, evaluate and then advertise as 3rd party support and implementers of those webledgers. THAT would be a real good niche for us, which doesn't require highly skilled Java programmers or big capital to start up.

Personally, I have been wishing that Great Plains or Solomon would wake up and roll out a solution that enables CPAs to serve as micro-ASPs.  The ERP vendors all have a rationally-designed business model that accompanies their hosting service. Their business model is directly serving Enterprise clients thru ASPs providing the network and hosting infrastructure, and existing letter-house consultancies as implementers same as when the host was inside the enterprise.  What difference does it make, where the physical server is located?  Duh.

If middle-tier accounting vendors like Acuity, Solomon, AccPac, and Great Plains changed their thinking on licensing, their products are serviceable as web ledgers for multiple unrelated companies, right out of the box.  I have gone out repeatedly to price these platforms as an ASP, and couldn't get a website up with 10 users for less than $45,000 here, between the Windows NT servers, and Citrix and GP licenses. 80% of the capital costs was the licensing costs. It was completely uneconomic only because of the licensing policies of the vendors.  Basically these package software vendors will rent it for full dollar, and you must design and fund your entire hosting platform yourself, on top of that! 

Perhaps the venture would not lock ourselves into a single network or software infrastructure. Why not organize as purely an industry standards body, or a trade union, to prevent monopolists in the banking, software and telecoms industries from stealing money from us?

The question is, who should make billions of dollars from the next generation of network-centric accounting software and services? Software companies and telcos? Or accountants? Why shouldn't we succeed in this? One principle of business is that the party who owns the customer, usually comes out on top. And no matter what the Telcos or ERP vendors' wishes may be, CPAs and accounting software VARs own the small business and mid-sized clients right now.

In my view the SME (Small/medium enterprise) is a reasonably attractive market: According to Computer Reseller News, Dec 7, 1998

* Account for 98 percent of businesses in the United States
* Represent about 50 percent of the gross national product
* Spend approximately $445 billion annually on IT products and services

Big Opportunity

* There are four resellers selling to every large business
* There is one reseller selling to every three midsize businesses * There is one reseller selling to every 145 small businesses

Big Employers

* 7,500 businesses with 1,000+ employees
* 163,100 businesses with 100-999 employees
* 800,000 businesses with 20-99 employees
* 9.2 million businesses with less than 20 employees

Karl Nagel has published research showing up to 28 Million total businesses just in the U.S., in 2000 based on tax returns filings and other data.

More webserver-architecture GLs will be installed on LANs than on public ASPs or ISPs. It's not clear how large the market will be for hosted web ledgers for small business, on the internet. (It is clear to me, for one, but most will not agree ...)

The venture I propose, therefore, is open to anybody who wishes to participate.  We should pool our money, research capabilities, and other resources to get this technology under control and stop drifting helplessly in the currents.

The basic picture I see is that powerful and energetic software companies like Great Plains, SAP, Oracle, and Microsoft are working overtime (both on technology and ideology) producing crossbreeds of their existing products and elements of XML, browser front ends, or whatever suits their fancy and protects their existing base.

CPAs and accountants perform a serious role in the economy.  We know our users needs and the needs of society. It is pathetic to see the CPA naively waiting for "the invisible hand" of the market to provide tomorrows' software environment.  The "invisible hand" is designing lock-in platforms for you, and your clients.  We've come so far down this road that we are on the eve of losing our franchise entirely, as the orderly, manual assembly of financial statements is set to be replaced by a realtime, drill-down XML financial reporting environment hosted by online brokers, and telephone and computer companies.

Look at the large number of mediocre FS writeup products, and the last 15 years evolution in the income tax prep. software market.  There are over 500,000 CPAs in the US and we have been crippled by a lack of any decently functional software for our domain.

We haven't got time to repeat that mistake in internetworked accounting and e-commerce environment.

I again call for members to buck up $5,000 to $25,000 and start funding some research, to identify the XML DTDs, electronic banking protocols, online commerce standards we want to use. This is primarily an act of perception not an act of creation or of politically influencing other actors in the software market.

We should articulate the goals and objectives we wish to achieve, identify the questions
that need answers, and research and product evaluation must be performed under rigorous standards and deadlines.  This could be done by members in a Joint Venture or by contributions in cash to pay for somebody to perform those tests.

We need to quickly and effectively identify the software products and repositories of open source software code that can be picked up and used by our clients and staff to get the following, long denied functions that NONE of today's accounting software vendors is providing to us or our clients at prices below $50,000

All of these things should be available in shrinkwrap products below $500, and certainly will be available in the next two years. But don't expect them to come from MS, Intuit or other currently dominant software companies with a pattern of selling millions of copies with annual upgrades, closed and proprietary databases, standalone one-copy-per-customer business models.

Let's create a business model for accountants using Web GLs to serve small business. Shoot me an email or post comments on the Discussion Forum.

TB 9/22/99 {updated 6/30/2000}