As the last software chief barrelling into Australia’s cloud accounting fray, Sage’s Alan Osrin has to leverage every available asset to succeed.
As an accounting undergraduate in South Africa, Alan Osrin paid for holidays by concocting knock-off scents. “I had a grandfather who sold bottles and a friend in the chemical business. I got him to make perfume concentrates, then I would mix alcohol with the perfume concentrates, bottle it and go to the industrial areas and sell my bottled perfume. In those days the branded perfumes were pretty expensive and mine weren’t and they smelled pretty good.”
It’s a simple strategy really: give the people what they want, how they want it. Right now they want the cloud and Osrin, the managing director of Sage Software Australia and HandiSoft Software Australia, is arriving late to the party.
In May, Australia became the 14th nation to be offered the Sage One cloud-based accounting system. Sage wasn’t just late to cloud in this market – it was last. By the time it entered, cloud champion Xero had racked up more than 200,000 paying Australian cloud customers, and MYOB well over 116,000. Reckon, Intuit, Saasu and JCurve all offer cloud alternatives, too.
“Any strategy has to be tailored ... you can’t apply a one-size-fits-all and expect it to work.”
Osrin, clearly frustrated with the speed at which Sage recognised what people want, is candid about his UK parent company’s strategic error. “Sage were late,” he says. “The previous management weren’t focused as much as the current management on technology … They saw Sage as a solid business that would be a pension stock for people in the UK – but not necessarily a technology company, because they weren’t investing what they needed for a technology company.”
And Osrin knows cloud is a strategic essential for 2015 software businesses. “Cloud has changed everything,” he says bluntly.
So his challenge now is simple: find a strategy to recover lost ground in Australia’s crowded and highly competitive market for cloud accounting.
The cloud challenge
It helps that Sage’s parent company has woken up to the cloud challenge. Stephen Kelly, formerly the chief operating officer of the UK Government, took the chief executive post at The Sage Group in 2014.
Osrin says Kelly is all about technology. “He’s incredibly focused, driven and passionate about small business and really sees Sage as a technology company more than the previous management.”
Osrin is now putting together the pieces of his strategy. One piece is to offer the product at very affordable prices. Another piece will involve applying his hard-gained market knowledge.
As the far-flung managing director for a subsidiary of a UK-listed entity, Osrin acknowledges his impact on Sage’s global strategy is “more execution than it is influence”. But he notes that every national market has its own idiosyncrasies.
“Any strategy has to be tailored in order for it to be successful. It has got to work in a particular geography. You can’t apply a one-size-fits-all and expect it to work.
“One of the things I have learned is that the culture [in Australia] is different. How you deal with people and treat people on a daily basis is different. It’s not rocket science and it’s not all that different, but it is slightly different and you’ve got to get tuned into the way it is over here.And the same with strategy: it’s got to be adapted or it will never work.”
The right people matter, too, he argues. He has already hired Lukas Taylor, previously the chief strategy officer at cloud vendor JCurve, to manage Sage One.
“I’ve always looked at the business and asked: ‘if I was starting again tomorrow, would I hire that person again?’ And if the answer is ‘no’, then they shouldn’t be there today. And if the answer is ‘yes’, then you have a good person. To me, it’s all about attitude – you can train for aptitude but you can’t train for attitude.”
Buy the best
Normally a Sage strategy would involve buying a market leader. For years, Sage’s approach was to pick off the number one or two supplier of small business accounting software in regions all around the world. It spent billions of dollars buying the accounting software leaders in the UK, France, Spain, Portugal and Switzerland.
Softline, the business that Osrin co-founded in South Africa, had itself expanded by buying up leading brands. Sage did exactly the same thing when it bought Softline in 2003.
Appointed managing director of Sage Australia in 2003, Osrin grew the business organically for some years. Then in 2011 Sage tried another brand acquisition – Australia’s leading small business accounting software firm, MYOB.
Sage initially offered Archer Capital A$1.35 billion for MYOB. But then it tried to reduce its bid by A$175 million. When that wasn’t accepted Sage folded, allowing Bain Capital to pick up MYOB two days later for about A$1.2 billion. (Archer took Sage to court over the bid, and a decision in the case was pending at time of writing.)
The failure to buy MYOB left Osrin with limited options. “Desktop software was already quite saturated. You wouldn’t go and build entry-level software because it was dominated by MYOB, and by Reckon with QuickBooks. To spend a lot of money to become number three in the market didn’t make a lot of sense.”
Meanwhile Osrin admits to terrible frustration at the lack of action on cloud from Sage’s UK parent. He was forced to watch rival software houses “come and eat Sage’s lunch, in some respects”.
But finally, with Sage One, Sage has a place at the table again.
Leverage your position
The cornerstone of Osrin’s cloud accounting software strategy is the thousands of accounting practices across Australia that use Sage’s popular HandiSoft to manage their practices.
Osrin knows well the question on everyone’s mind, because he has already been asked it several times. “MYOB and Xero are dominating,” he recites. “What makes you guys think you are going to get any market share? Are you out of your mind?”
Then he explains: “The reason we think and believe we have a good opportunity is that we have 7500 accounting practices using HandiSoft … and our accountants touch close to four million people a year because that’s how many tax returns get generated through our software.
“These accountants have been trusting Sage with their own practice software. So we don’t think it’s a far stretch for them to sell to their clients the small business software that is better value than the competitors’, and provided by the same guys that they use to run their own accounting practices.”
People talk of 2.3-2.4 million small businesses that have software in Australia,” he says, “but [so far] only about 300,000 of them have moved to the cloud. And even with [that] 300,000, there will still be churn.”
Eventually, he believes, two million small businesses in Australia will adopt cloud computing. In his view, there’s plenty of room to compete effectively with the cloud pioneers.
But he won’t sacrifice profits for market share.
When pitching to their shareholders, cloud pioneers such as Salesforce, NetSuite and Xero have always focused on the land grab: seize market share early, and the profits will follow. Shareholders have been patient, buttressed by the rise in their stock values.
Osrin says that’s not a strategy available to him. He has to deliver market share and profits simultaneously.
“Unlike Xero, we are in business to make a living. Salesforce has gone to their shareholders and said ‘it’s about hitting the US$10 billion revenue mark – or it’s about gaining X amount of customers and it doesn’t matter how much we lose – are you prepared to buy into that strategy?’ That’s not part of Sage’s strategy.”
Osrin spent much of his early career in a small business environment, when he was setting up a software firm with his friends. Now he’s betting that his firm’s existing relationships with accountants in practice will give him the strategic edge he needs.
“I’m aware of what these guys are doing on a daily basis. So if we can provide them with software that in some way can make their life easier, and focus on what is important to them, then I think that I’ve done a service. And at the same time I can charge, for that service, fair value.”
From Softline to Sage
As a child growing up in South Africa, Alan Osrin knew that a rainy day would cast a pall over the family home. His parents ran a clothing shop, and on wet days customers stayed home.
His father, raised in a South African orphanage from the age of six months, was focused on family more than financial success. It fanned an entrepreneurial flame in his son, who was determined to have more control over his financial fortunes.
That led Osrin to build software company Softline in 1988 with his good friends Ivan Epstein (now CEO for Sage in Africa, Australia, the Middle East and Asia) and Steven Cohen (head of Sage’s cloud business).
In 1999 Osrin moved to Australia, where Softline took over Perth-based HandiSoft. The company had acquired Adelaide’s Sybiz Software the year before and went on to buy Sydney-based MicrOpay in 2002.
But Osrin and the other co-founders’ share of Softline had become so diluted that they no longer controlled its destiny. It was sold to Sage in 2003 for ZAR600 million (about A$116 million at the time) in shares and ZAR200 million cash (A$38.5 million).
“It was the best acquisition they ever made,” says Osrin. “The payback was just over a year through revenues and profits.”
Appointed to run Sage Australia in 2003, Osrin was able to provide his family and parents with the financial security he craved as a child. And his father took immense pride in his son’s success.
This article is from the August issue of INTHEBLACK