Scaling in Service Industries: Sqrl and the Approaching Wave of Disruption

January 29, 2014

3:09 pm

This is a two-part story. The first part is about a cool startup that just raised a seed round. The second part is about the bigger trend that startup embodies.

First, the news: Sqrl, a Cincinnati-based startup, just raised $550K to “defeat external communication deficiencies in the accounting and greater professional worlds” in a round led by CincyTech, with participation by Hyde Park Venture Partners and Vine Street Ventures. Now you probably don’t want to think about anything to do with accounting during tax season, but stick with us, and I promise you’ll see an exciting tool that has much wider implications than just replacing emails about W9s.

Sqrl (pronounced “squirrel”) is a web application designed to structure and simplify communication for the working world. Accountants and other professional knowledge workers spend as much as 25 percent of their time manually creating, tracking, following up on, and processing requests for essential client information. Sqrl solves the problem of lost time and profitability with a request engine that automates and manages routine communication and requests. It effectively eliminates the need to ever follow up.

This wasn’t just an idea cooked up by startup kids searching for any “inefficiency” to build a company around; the founders of Sqrl are all accountants who ran their own firm, repeatedly encountered a problem, decided to build a solution that worked for them, and then realized it could scale and have larger impact than just a simple in-house tool. I wrote previously about the advantages of coming from the industry and solving your own problems, so I won’t dive into it again, but I think it’s a good idea. So do smart tech people.

Their strategy is to focus on small and regional accounting firms, with plans to expand the tool for the broader professional services market including financial advisers, lawyers and digital agencies. It’s when you take into account this larger view, and think about the amount of time wasted around information requesting, gathering, and organizing, that you see the true potential of a company like Sqrl.

Now for the 2nd part of the story: what this means for the tech and services industries. The thing that interests me most about Sqrl’s story is not the technology, as interesting as it is. What strikes me the most is that this is the next step in a wave of “disruptive optimization” that has been sweeping through every industry over the last decade. Amidst all the radical changes brought about by Internet technologies in almost every aspect of the economy, the professional services industry has remained largely stable in the midst of the storm. This is due largely to the fact that when dealing with knowledge workers, it’s hard to replace them and it’s also hard to scale them. Replacement and scale are the two things the startup industry seems to do best. I spoke with Ryan Watson, the CEO/co-founder of Sqrl, and turns out he’s an expert on this very subject. Before founding Sqrl, he was on a committee for Xero (a cloud accounting platform) that specifically studied and discussed the adoption of technology in the accounting and services worlds.  This is what he had to say about it:

“Service providers have never been the early adopters, but that’s changing because technology is now providing an opportunity to increase potential market size, which has always been limited by a geographic focus. There are finally ways to scale services. Business owners are now seeing that there are tools that allow you to take care of financial services in the cloud, so accountants can serve anyone anywhere and be much more specialized.”

This idea of scaling services is very powerful. There are so many knowledge workers whose reach and effectiveness are limited by constraints that are now being loosened by companies like Xero and tools like Sqrl. This is the real opportunity that Sqrl can grow into. By increasing the efficiency of service providers, they allow for more real work to be done for more clients, effectively scaling the impact of an individual worker. But what looks like opportunity to software companies also looks like a red flag to all the comfortable mid-tier professionals who have been insulated from the hyper-competitive landscape that these disruptive technologies bring. When everyone everywhere can access all their needed services at competitive prices, why would they choose anyone but the best? The innovations are coming, and they’re bringing big opportunities, but also big changes. There’s no stopping the Sqrls, so the firms of the world better get ready to run with them.

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Austin Rory Hackett is the cofounder and CEO of CrowdHall. He loves karaoke, pinball, and rock climbing. Follow him @austinrory.

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