The Accounting Podcast

Blake Oliver: Hi there. Blake, here, with another bonus episode of The Cloud Accounting Podcast. Escalon provides accounting and business services to over 3,000 companies. They have 800 employees worldwide and have been operating for 16 years, but you've probably never heard of them. That's because they're not a CPA firm, so they don't show up on the traditional rankings. In this interview recorded at the 2021 SuiteWorld conference, David and I chat with Anurag Paul, CEO of Escalon. Keep on listening to learn how Anurag has grown his team to become one of the top NetSuite accounting partners in the world.

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Blake Oliver: Welcome to The Cloud Accounting Podcast, I'm Blake Oliver.

David Leary: And I'm David Leary.

Blake Oliver: We are live at SuiteWorld.

David Leary: SuiteWorld. This is our last interview, I think, but it's exciting, Blake, because we actually have an accounting firm-

Blake Oliver: What?

David Leary: -to interview. It’s our people.

Blake Oliver: Our people are here.

David Leary: Are here ... We have the CEO of Escalon, Anurag Paul. He is joining us and we're going to learn about his firm; ask why he’s even here at NetSuite, because a lot of our friends are the QuickBooks, and Xero people. Let's understand this. Where does Escalon- what's your firm? What's your clients? How big are you?

Anurag Paul: Sure. I think I can probably start with the origin story. That'll probably give you a lot of color and context as to why I'm here. Escalon has been around for 16 years. I started the company with another co-founder. Both of us have very similar backgrounds, and Escalon comes out of our personal journey. Neither of us is an accountant. Both of us are the engineer/MBA types, run of the mill; worked in Fortune 50; then, decided we didn't want to work for big companies anymore and have been serial entrepreneurs since, for the second half of our careers.

Every time we were serial entrepreneurs, we kind of struggled with everything that was non-core, yet essential to running a company. Things that seem to happen as if by magic, when we were at large companies, we always struggled with - everything in the back office. We basically started Escalon to set up a one-stop-shop solution for everything non-core, yet essential for any small company, whether it's a VC-funded startup, or an owner-operated small business. Some of the needs are very similar, and our vision was to set up this company that would do all of that non-core, yet essential stuff.

What we've done over the last 16 years is create a category out of this space, and we call it Essential Business Services, made up of three main service lines: Financial Operations, People Operations, and risk. In Financial Operations, we provide end-to-end finance, and accounting solutions; everything from the CFO on down, to transactional accounting, plus all tax, and all compliance. People Operations, we help companies manage their workforce; end-to-end solutions in recruiting, HR, payroll, benefits. Then, Risk is all other insurance a company might need. As part of the firm, we have an in-house insurance brokerage licensed in all 50 states, all lines of coverage.

These three things come together to give companies this paperless, seamless audit-ready back-office function that kind of scales with companies. We serve companies 0–1,000 employees. We have over 3,000 customers; about 800 employees worldwide. We have offices all over the U.S. We are headquartered in Palo Alto, California, and we have a European operation, as well as an Indian operation.

David Leary: You said 0–1,000 employees. I'm sure these small companies ... No matter what size you are, you want your back office done. I get you’re a one-stop-shop back office ... What’s attractive about you?

Anurag Paul: That’s our tagline, “And Done.”

David Leary: “And Done.” I see what's attractive about you, but obviously, you can't put all those people on NetSuite immediately. What do you do? What's your path? How do you migrate people? How do you even support that in your company? I'm sure you have to use multiple accounting systems. How do you do this?

Anurag Paul: David, great question. Given how long we've been around and the number of customers we have, we have one of everything. We've never led with technology, so we practically have every accounting system known to humankind, at this point, in our midst. With the new program that NetSuite has launched, especially on the BPO side, and especially with us, we have a very specific program with them. We can actually- it makes sense for companies, off the ground, from day one, to start with NetSuite.

Blake Oliver: Really?

Anurag Paul: Because every company has ambition. If you don't, you shouldn't start a company. If you have ambition, and you want to grow, and you want to scale, and you will have multiple entities, and eventually, you'll want to go out, especially if you've taken other people's money, and then you have that burden of growth, you will need a NetSuite-like solution eventually. With the program that we now have in place, it makes a lot more sense, from a fiscal standpoint, to do that from day one versus down the road.

Blake Oliver: So, I am a startup founder, and I have received- I guess I'm about to go out and raise a Series A, or even before that, I engage with you, get set up on NetSuite. I've got everything on there.

Anurag Paul: Day one.

Blake Oliver: Is this something that is available to all accounting partners, or is this just something that is unique to Escalon?

Anurag Paul: I think it's unique to us, and I think it's the program we have in place, where we can combine what we do as a service for them, coupled with the solution that we bring to bear - it makes sense, from day one, to do it this way.

Blake Oliver: How did your relationship with NetSuite start?

Anurag Paul: It's interesting. The second customer we ever had 16 years ago was a fairly large-sized company that was switching from QuickBooks Desktop to NetSuite. The second customer we ever had was a NetSuite customer, so we quickly got trained up on how to use NetSuite, how to do the BPO, or the accounting function for them in NetSuite.

Over time, as this program was launched, this BPO program, and we found out about Mike Kulisch, and his team. We basically adopted it, and it made a lot of sense. In the initial days, it made sense for companies a certain size, as they were graduating in NetSuite, the new variation of the program would make sense, as I said, from day one.

David Leary: As you grew your firm, built processes around your own firm, itself, NetSuite was always a part of your growth versus there's a lot of accountants, and bookkeepers, they've built these practices on other packages, and now they have customers that need something like NetSuite, and they don't have training; they don't have employees. They’re in a little bit of a dilemma. What do they do with those clients, or how do they ... What to do with them? You got lucky, right?

Anurag Paul: We did, in a way.

David Leary: You got NetSuite on day one.

Anurag Paul: We've known Evan for a very long time.

Blake Oliver: You said 16 years ago, so this was a pretty early version.

Anurag Paul: We've known NetSuite from very early stages; very early days. You're right, we did get lucky. What we've shown, and this comes from our background, is we've always imagined what the customer needs, and what they really want as a solution, and then used technology as a vehicle to that end;not technology be the solution itself. We've always been very adaptable as new things have come to the market.

David Leary: Do you work with other accountants, and bookkeepers- if they have clients that are stuck; they've hit a growth curve, or they have a data problem, or the springs are popping out of QuickBooks, do you partner and work with them, or do you just kind of, “Hand us the client, and we'll take them from here ...”? How does that process work?

Anurag Paul: The BPO program unfortunately doesn't really work well by going in somewhere, and changing systems, or doing a system implementation. You're better off using an SI in that regard or using a person who's just focused on the technology part of it. What we do is the entire solution. In that regard, it probably makes sense for us to just take over the client, especially if it's going to be served in a BPO kind of way.

Blake Oliver: What's your ideal client?

Anurag Paul: The one who pays on time.

Blake Oliver: Well, if you're doing the books ... I always loved, when I had my firm, I did the accounts payable, because I could pay myself. No, it's true. What is an example- what kind of clients are you getting? I think this could be illustrative for our audience because what's the difference between somebody who needs BPO on NetSuite versus QuickBooks? You already said that you can do it from day one now, but I imagine you must be working with-

Anurag Paul: I'll give you two ends of the spectrum. You could have a startup that is, from day one, multi-geography. The founding team is in a different geography. The sales is focused on a different geography, or they have people in three different geographies to begin with, which is very common these days. They raise a round of funding. To them, it makes sense to be on NetSuite, day one, because they want to have a unified worldwide view of what their books look like. Given this new program, it's fiscally easy, and responsible to do it that way from day one.

On the other side, you could have an owner-operated business that just started up. Maybe NetSuite is overkill in the first go around, and they don't need NetSuite just yet. Even there, if price is out of the equation, and they have ambitions to grow, and scale, and, at some point, they'll outgrow whatever other system you put them on, then, if it makes sense from a fiscal standpoint, do that day one is what we would recommend.

Kinds of customers we are getting, we get a lot of customers who have VC money from day one. We get a lot of customers who come to us because a PE firm just invested in them, and they need to figure out a variabilized cost structure in this area. We do get - because we have a lot of customers in different sectors - through referrals, and people who have worked with us before, other companies in the same sector. That's where we get a lot of our owner-operated businesses from.

David Leary: It's interesting, that's one of my observations at SuiteWorld here- I think, in general, for us, coming from our background, the accountant, or bookkeeper would dictate to the small business what accounting solution they're going to use. It feels like, in this world, the VCs, and private equity companies demand that people use NetSuite. They’re making the decision.

Anurag Paul: Actually, they don't really. They let us make the call.

David Leary: They still let you? Okay.

Anurag Paul: What they will tell you, unless maybe at a [INAUDIBLE 10:00], they might give you that guidance: if you're going to go out, if you're going to the market, if you're going to The Street, you have to get to NetSuite. You can't go IPO on QuickBooks. Maybe you can. I haven't seen it done yet.

Blake Oliver: I think Uber got the farthest. They were maxing out the database-

Anurag Paul: I think they were.

Blake Oliver: You can't. You can’t. It's not possible.

Anurag Paul: Even these days, they let the professional CFO make the call on things like that.

David Leary: How do you charge your clients? Is it a fixed fee? Monthly? Are you value pricing? I'm assuming some of these clients you’re getting are VC-backed. Are you hoping to go out and IPO, or are you getting equity in these companies?

Anurag Paul: We don't do equity at all. The way we price is, on the Financial Operations side, we try to do a fixed fee per month based on scope of service. That scope of service is based on the stage you're at, the number of transactions, what kind of strategic resource help you need, how much of a CFO’s involvement would you need, etc. It's basically fixed fee, so you have predictability in what you're paying. People Operations, we have different levels of service and standard per employee/per month pricing, so it scales as the headcount grows. Then, Risk is we don't charge anything, since the carriers pay us.

David Leary: Tell me about your firm, your employees. How many employees do you have? Are they all accountants? Are some bookkeepers? Do you have engineers? Are you starting to tiptoe into those waters- an accounting firm with engineers?

Anurag Paul: Worldwide, we're over the 800-employee mark now. I would say 60 percent of our company are accountants, trained accountants. We an over 100-percent tech team now. A lot of this distributed ... If you're serving 3,000 customers with 800 employees, just managing that work requires a lot of internal technology that we have to deploy, and how that is presented, and externalized to customers, and the way they consume it, we're trying to take a stab at that, as well.

Blake Oliver: You said you've got one of everything, but you have favorites, too. Obviously, NetSuite is a favorite.

Anurag Paul: Yes.

Blake Oliver: What can you tell me about your technology stack - your idealized stack, when you're setting up a new customer, if you have that opportunity?

Anurag Paul: Let's take a standard customer who has OPM - other people's money. It'll probably be NetSuite, Bill.com, Expensify, Carta, and either Brex, or Divvy, or one of those platforms for the card function.

Blake Oliver: You have the manuals in place just to roll all that out, probably very, very quickly?

Anurag Paul: Yes. For some of these companies, we are like the largest resellers in the country. We have dedicated lines of support; dedicated ways of doing it; dedicated ways of rolling it out, pretty much out of the box.

Blake Oliver: How do you acquire- I think you mentioned this; refresh my memory, though - how do you acquire your customers?

Anurag Paul: We have a sales team, and we have three different sales motions. We have our referral sales motion. At the end of the day, this is still, in certain segments, very much a referral-based ecosystem. We have the right referral partners; we have the right ecosystems in the right geographies. We build those systems, and basically feed our partners, and they feed us. One of our key values as the company is fostering entrepreneurship. Wherever we find these entrepreneurial ecosystems, we thrive on them. The second is inbound/outbound marketing, the standard hand-to-hand combat stuff. SEO, SEM, feet on the street, inside sales leading to outside sales. Then, because we do a lot of different things, our third sales motion is cross-sell, upsell, maximizing wallet share within our existing customers.

Blake Oliver: You do a lot of the same things that an accounting firm does, but you're not an accounting firm. Neither you, nor your partner ... You have one partner in Escalon-

Anurag Paul: That's the main partner. We have a full-fledged management team, but two of us are the co-founders.

Blake Oliver: But it's not a CPA firm; It’s not-

Anurag Paul: No, it’s not a CPA firm.

Blake Oliver: None of you are accountants, but with- did you say, 800 staff around the world? That would put you up against many Top-100 accounting firms, in terms of size of staff, and probably revenue, too, I imagine.

Anurag Paul: Yeah. Because we've been entrepreneurs, and we sat on the other side of the table, we've always imagined what would they need versus I am this, and I do this. We are like, “I am a customer; this is what I need,” and we've tried to envision the service based on that.

Blake Oliver: What advice do you have for the accounting profession?

Anurag Paul: Automate wherever possible. If you don't, somebody else will, on your behalf. Move up the chain; make sure you're providing the right strategic advice and figure out the right verticals to go after. If you're going into the strategic advice game, it's not the same advice across verticals, especially if you're doing the CFO-ish function, versus being a tax planner. If you're doing the CFO function, then you do need to have some levels of specialization in whatever segment it is. Figure out those segments, figure out how to be the CFOs in those segments because a lot of the stuff underneath that will be automated here eventually.

David Leary: Are you doing CFO-type advising, as well, in your firm?

Anurag Paul: Yeah.

David Leary: That's part of that stack.

Blake Oliver: I love how clearly, on your website, and when you speak about it, how clear it is what you do. You said there's three areas - there's fin ops, people ops, and risk

Anurag Paul: Marketing team is listening to me, it looks like.

Blake Oliver: Risk is you are selling insurance through carriers.

Anurag Paul: Yes, we are just acting as a broker function- and the reason we do that is from a completeness of solution perspective. This is because these are the three areas we think are key in the back office that people need.

Blake Oliver: Did you have any more, David? Oh, I thought of one more question - recruiting talent. It's like the big challenge in our profession right now. Where are you finding these CFOs? That's the big challenge for folks who want to move into advisory.

Anurag Paul: It's a full-time thing for us. We're always looking for CFOs, and we have a methodology. What we bring to the table, what we bring to the table for these people is unique from a value proposition. A lot of people don't want to work for just one company. They like the challenge of working for many different companies. They want to set their own hours. They want to have the flexibility. They want to make good money, but they don't want to kill themselves doing it. We bring all of that to bear.

Blake Oliver: Do they come to you from industry positions?

Anurag Paul: Most of them.

Blake Oliver: Most of them?

Anurag Paul: A lot of them have had consulting. This is one function- CFOs have always been consulting. Even when they have full-time gigs somewhere, they're always helping their friend, their neighbor, this company, that company. A lot of them do have that consulting DNA, but people who've done that consulting, it really helps in managing multiple clients.

Blake Oliver: On the accounting side, where do you look for accountants? Entry level? I assume you're hiring folks in the U.S. for that, or is it ...?

Anurag Paul: We're hiring folks all across the world. We find the same places everywhere else, and our recruiting is one of the functions we offer as a service as part of our people-ops function. We have turned that into- the thing that sets us apart from a lot of other companies is we think of everything as a process, and we've broken recruiting down into a process and figured out what is the most effective way of recruiting for every kind of position, every kind of market.

Blake Oliver: If I'm one of your clients, and I'm growing, and I now need an in-house something or other [CROSSTALK 16:59]

Anurag Paul: We will help you hire that, and we can do it at a fixed price, unlike a retained search, which is very, very cost effective.

Blake Oliver: Nobody likes recruiters for that reason-

Anurag Paul: Exactly, exactly. Nobody likes people who- where the outcome is uncertain, as well as the price point.

Blake Oliver: Right.

Anurag Paul: There's two variables. That's not good. How people can find me, David, to your question, the website is the best way to find us. Just go to our website, www.escalon.services.

Blake Oliver: That's spelled E-S-C-A-L-O-N.

Anurag Paul: Services is just like it sounds. you can find us there, and somebody will be in touch with you right away.

Blake Oliver: Anurag, thank you so much for your time today. This was really enlightening.

Anurag Paul: Sure. Thank you for having me.

David Leary: Thank you.