By Lucy Cohen, Co-Founder of Mazuma
Back in October 2014 we got wind of a new accountancy service for small businesses - run by KPMG no less. The firm announced it was one of the first of the Big Four to go after the SME market with a £40m investment (gasp) in a technology platform that would enable KPMG to deliver accounting services to small and start-up businesses at a fraction of its usual fees.
I'm not going to lie, it concerned us a little. We were the first into the market in the subscription-based accountancy service sector and had built a strong business model based on high volume, low fee clients. It wasn't easy - the world was a very different place back in 2006 and it had taken a long time to educate people about our service. We'd set out to revolutionise the small business accountancy industry in the UK and it had been ruddy hard work! Over the years we've seen similar companies to ours crop up and then disappear again - but never one that had so much experience, such deep pockets and such huge resources at their disposal.
In 2014 Mazuma was 8 years old. We were just starting to achieve the growth we were looking for and had built up a good base of clients and positive reviews. Could a big firm like this blow us out of the water?
There's no doubt that the intent was there. Mazuma has been pretty high profile over its lifetime - winning awards, attracting PR and shaking up an old-school industry. And the market we operate in is a big one - in 2018 there were over 5.7 million SMEs in the UK, making up over 99% of all businesses. It's understandable that one of the Big Four looked at what we do and saw an opportunity.
Simon Collins, UK chairman of KPMG at the time of the launch, described the move as, ‘revolutionising the market for accounting across the UK.’ Sounds familiar, but ok...
Collins said the firm’s aim was to become ‘the clear choice for all privately-owned businesses’. Yikes.
The thing about the small business market is that it's incredibly diverse. Small businesses range from a part time window cleaner earning £12k per year to a £3m turnover enterprise with 10 staff. They're all clumped into the same bracket statistically.
Creating a "one size fits all" service in that market is very difficult. And it's that kind of service that ultimately becomes profitable. So you have to be incredibly specific - for example, our target market are businesses that turnover less than £500k and have fewer than 10 staff. If you aren't able to create processes that fit your exact market, then you end up having to charge more because your businesses model is no longer efficient. And then you drift back into that traditional old accountancy model; which is far from revolutionary.
Now let's talk price, an important factor in the small and micro business market. Their prices started from £150 a month. Word on the street was that was the price for a sole trader with no VAT returns. If you're a self employed yoga teacher, do you need a £150 a month accountancy service from KPMG? Or do you need a £25 a month service from Mazuma? (spoiler alert - it's the latter!).
The size of the market and the relative simplicity of the compliance involved for the market (tax returns, VAT returns, Ltd Company accounts, advice around tax efficiency) make it look incredibly attractive. Of course, for any business owner they know that all of those things are not simple at all; but for KPMG, compared to the high level and specialist advice they usually provide, it looks like a doddle and quite frankly, a bit of a cash cow.
But it's not a doddle, rather a nuanced and complex area to operate in. Working in the small and micro business market requires real empathy for the businesses you have as clients. You have to live and breathe their journey with them; be a sympathetic ear on the day they get a scary letter from HMRC, and celebrate with them when they hit their goals. All while helping them navigate through the mire of tax returns, VAT returns, payroll submissions and year end accounts that form a wildly inconvenient part of running a small business. Perhaps a Big Four firm isn't best positioned to provide this sort of intimate service to small businesses?
The small and micro business market can be further segmented into sole traders, partnerships and small Ltd Companies (or owner-managed Ltd Companies). Typically for these businesses the owner is still involved in the day to day delivery of the product or service. These businesses need the compliance work and support given by a company like Mazuma. For those that become fast growth and high flyers, that's where there is an opportunity for the Big Four. The thing is, to find those rare few you need to have a good position in the market to identify them. It's a catch 22 - Mazuma has the positioning and ability to service that market but those fast growth businesses could outgrow our services. The Big Four want the ones that outgrow us but currently have no way to identify them at the early stages.
Apparently KPMG have written to all their Enterprise clients in the UK to tell them that they'll have to make alternative arrangements for their accountancy going forward as the unit is being wound down.
And that's it apparently. They're sending clients off back in search of a suitable, sustainable accountancy service where they failed to deliver one.
The Big Four have their place and are experts in their fields. And let's not rule out them having another bite at the cherry in the future (we'll keep ours ears to the ground!). There is most certainly an opportunity here for them, but I think they need to approach the matter in a different way.
If they go for it again, let's hope they seek the expertise of a company like Mazuma who could prevent £40m being wasted and instead help create something incredible for the small and micro business market...because we love that market!
And in the mean time if you've been dumped by KPMG, give us a shout. I'm sure we'll be able to help.