By Paul Esherwood
Sage is a brand that we all know. It is one of the most iconic British companies and has more than 600,000 customers in the UK – more than any other tech company by far. Known for its small business accounting software, Sage recently acquired Intacct for a cool $850m and has set its sights firmly on the mid-market opportunity. Paul Esherwood sat down with Sabby Gill, UK&I managing director, to discuss how Sage is reinventing itself after a difficult few years with a renewed focus on customers, colleagues, and innovation.
Ask anyone to name a public address system and they will almost certainly say ‘Tannoy’. Think of the stuff you wrap delicate objects in and most will say ‘Bubble Wrap’ and those little sticky notes you write on to remind yourself to do something are called ‘Post-its’. All three are examples of brands that are so synonymous with a product that they have become the generic term. Ask the man on the street to name a company that sells accounting software and you will likely only get one answer – Sage.
Sage is one of the UK’s most recognised brands with a heritage in small business accounting and more recently in enterprise resource planning for corporates. Its history stretches back almost 40 years and it is one of the very few companies to have occupied a permanent position on the FTSE100. In the 1990s Sage was the darling of the stock market and was the best performing company rising in value from roughly £3 per share to a high of £794 per share a decade later – a gain of 26,000 percent. Remember, this was all before the dot.com boom and very few, if any, shares performed as well. Even on the global stage in the same time frame Oracle’s shares rose roughly a fifth of that. Anyone who put £500 into Sage in 1990 would have been counting out a cool £14m by the start of the new millennium. An unprecedented return on investment and testament to the meteoric rise in value and status of this once small start-up from Newcastle that made estimating software for printing companies.
However, a little like the aforementioned dot.com boom, Sage’s fortunes over the last 20 years have not always been on the same unbounding trajectory as during its heydays. By 2003 Graham Wylie, one of the founders who had served as its long-time chairman, had stepped down and a few years later, Paul Walker who had been CEO for more than 16 years, also departed. During the first part of the last decade Sage appointed and lost three managing directors for the UK business and a further change in the CEO chair in 2017 – when Stephen Hare replaced Stephen Kelly – all amounted to a rather unsettled ship. Adding to this was the dramatic impact that digital and cloud was having on the enterprise software sector – coupled with Sage’s stalling revenue growth – and it was clear that the company needed some fresh thinking and a renewed focus. Thankfully it got it.
Under the new stewardship in the UK of Sabby Gill, Sage’s revenues are up – dramatically up from a plateau that lasted almost five years – and subscription revenue (the kind that all vendors like nowadays) exceeds £1bn. Gill joined Sage 18 months ago with a mandate to refocus and revitalise the business and he told ERP Today in this exclusive interview how he and the extended leadership team have breathed new life into this bastion of British commerce.
I start the interview by asking Gill how he evaluated the opportunity at Sage.
“The good thing about being based here in the UK is you can’t avoid Sage whichever way you look at it. Not only did I compete against it when I was at Oracle, but more recently with the manufacturing product that we used to have with Epicor. I knew a lot of the individuals and I once ran my own small business so I’ve come from a user perspective as well.
“When I evaluated the opportunity I could see the challenges. We were coming off a particularly difficult period for revenue growth and to make the transition from on-premise based perpetual licensing to a cloud based organisation is not easy. I’ve done it a couple of times and it requires a different level of execution, focus, people, processes and commercial models. But that was when I got more excited. The more I delved into it the more I could see where the opportunities were and how I could make a difference. I knew how great it used to be as an organisation. I knew some of the individuals. Its got great people. Its got a superb brand and the products – nobody comes anywhere close in my opinion.”
PE: So what was going wrong at Sage? What is the new vision and what steps have been put in place to transform its fortunes?
SG: “When I came on board we definitely had a few difficulties around customer and employee engagement. We had just let go of some senior management as well as our CEO so there had been a lot of change and I think we lost our focus for a while. Sage is a company with a lot of heritage and being a super brand of the UK is something we take pride in. Being responsible for the UK and Ireland business where we have 3,000 employees and 600,000 customers is an important responsibility. For me, that was the real opportunity that I saw when I came on board.
“We recently released our financial results and you’ll see last year was a good year for the company, and the UK has been called out as a top performing region from a growth perspective. Our recurring revenue is higher than where we were this time last year. The same thing on subscriptions – as a company, we generate £1bn worth of revenue through subscription, so we’re back.”
PE: How did that turn round from a difficult few years?
SG: “I think it really came down to one thing, which is focus. We were probably doing too many things and when you look back we weren’t focussed as an organisation. We asked ourselves the question; what is it we want to be famous for and what’s the journey that’s going to get us there? If you want to be a SaaS company, which is what our vision and purpose is, the only way of doing it is by focussing on those things that will get you there – not trying to do an army of different things.”
PE: Is that how you see Sage, as a SaaS company, cloud-first?
SG: “Yes, absolutely. Three or four years ago our subscription revenue was sitting nearer to £300 million. Now we’re at £1 billion. You don’t get to that without some element of focus, discipline and really having a clear vision that everybody adheres to.
“The other important aspect that our CEO, Steve Hare, brought in last year was some guiding principles. We call them our three pillars and everything that we do has to be augmented around these ideas; colleagues, customers, and innovation.
“I knew some of the individuals. Its got great people. Its got a superb brand and the products – nobody comes anywhere close in my opinion”
“If we found ourselves doing anything that didn’t align with those core principles then we stopped doing it. That level of action, discipline and attentiveness is what really made the difference. Most organisations talk only about customers – and I’ve said this to our customers too – you can’t always automatically just say, ‘It’s all about the customers’ although they are obviously very important. I firmly believe that it’s just as important, if not more important, to look at an organisation from a colleague’s perspective and I have put all my focus on the individuals, the people, the training, the career development, and ensuring that Sage as an organisation has all the means and resources to be successful.”
PE: That’s no small task when you’ve got 3,500 employees. How do you go about starting?
SG: “It really does come down to listening and understanding what is it that makes our people tick and what help and assistance they need in order to be better engaged as an organisation. When I came on board just over a year ago our employee engagement level was at 50 percent, which is not a great place to be. Our employee MPS scores was a negative by a big number – I could scream it was so bad. Here we are a year later and we’ve just finished our latest employee opinion survey – our engagement level is sitting at 85 percent.”
PE: That’s a huge turnaround given that cultural shift, whether within an individual or just the DNA of the company, is not something that can be changed overnight, if at all.
SG: “Yes, I’d agree but we managed to do it. Best practice says in any given year you can probably move five to ten points. We moved 65 in the last year, so we went from a major negative to a big positive.”
PE: Did you just pay everybody more?
SG: “Actually, do you know what? Salary doesn’t necessarily do it for everybody. For me, the most important thing isn’t money it’s recognition. Standing up in front of your peers and being told that this individual knows what they’re doing and they’re really good at it and getting that element of recognition, I would say is probably more important to individuals than the money.
“But of course being paid properly is important so we changed our bonus scheme to be much more focussed on the individual rather than company performance. It was an easy change to make and it’s made a big difference. We are also in constant dialogue with all our employees throughout the year rather than having quarterly or half-yearly reviews so that everyone knows how they are doing; we know when they need extra support and we all work together towards our common goals.
“Another great indicator that we are moving in the right direction has been the new engagement with our foundation. Since last year we’ve had a 48 percent increase in the number of days that people have volunteered. In 2019 we did 6,371 days of volunteering and that’s a real testament to the way our employees feel about Sage and the work we are doing.
“The combination of refocussing ourselves as a company and making a few simple changes to the way we engage with our employees has made a huge difference overall. Not only is our engagement level the highest it’s ever been but our attrition levels are the lowest they’ve ever been.”
PE: Were there any surprises when you joined? Was anything either better or worse than you had expected?
SG: “If it was anything that took me by surprise it was the belief. From a product perspective, no organisation in the UK has as many customers as we do. Nobody has the reach that we do through our accountants’ networks. We’ve got these superb products like Sage People, Intacct and X3 and when you couple that with the extraordinary belief and that passion from our people we really have got all the elements to be great again.”
PE: Moving on to products, do you see Sage as a vendor of enterprise software, as a small business accounting provider, or a payments company?
SG: “We’re absolutely focussed on financial accounting. That’s our background, it’s our forte and it’s where we’ve got a lot of experience.”
PE: The Sage brand is universally known. You’ve got more customers than anybody else and you pay more people than any other company does. Is that something that actually holds you back from winning enterprise customers because the perception is that Sage is only for small businesses?
SG: “Actually that’s a really good question. I would say it has held us back because traditionally that’s what we’re known for and that’s what we’re famous for. When you look at the 600,000 customers, about 90 percent sit in that lower segment, which is the reason why when you look at the products that we have, Sage People through the acquisition of Fairsail, the largest number of customers at our install base sits here in the UK. Intacct, will be the big differentiator.”
PE: I was leading into Intacct because it’s not an inconsiderable acquisition at $850m. How will you recoup that investment at the smaller end of the market?
SG: “It’s not in the small end of the market, which is the reason why it’s not going to be a product that we will be selling in that segment. It’s a medium segment product.
“There is no clear winner in that mid-market at the moment and that’s where we see Intacct being a game changer for us. Lots of small vendors are trying to move up and that’s difficult because you can’t move to digital and build a field sales team overnight. And the bigger players are reluctant to drop down because they have been so used to hunting for the biggest deals. Despite that, there’s a lot of competition in the mid-market and that’s where Intacct is going to sit.
“It has been built as a cloud-native product from the outset so there’s no history to undo or re-engineer. We have 12,500 customers globally, predominantly in the US, but that’s a great set of customers to look at and learn from. We’ve launched in Australia and very recently rolled out in the UK and signed our first customer, Arlington, almost immediately.
“In less than four months we’ve gone from a complete start-up in the UK to a team of 18 people. I’ve got a direct sales organisation, a platform organisation, and a cohort of partners already signed up. We’ve signed a strategic relationship with PwC and identified the larger accountants in our network that can help us drive the proposition.”
PE: So where is the market for Intacct? Existing customers migrating from a different Sage product or are you going after new business?
SG: “My primary focus is on the net new. If you look at why Intacct has been successful, they have a play book like most ERP organisations have. But the unique thing about this play book is that we know every industry vertical where they’ve had experience, where they’ve been successful, and where the references are. We know the seven or eight sub verticals in our first edition launch where we know we will absolutely be successful and we can also backtrack in our X3 market where maybe we’ve missed a few opportunities.”
PE: Sage spent $850m on Intacct and if you are only going after net new customers that’s a lot of business to win isn’t it?
SG: “Don’t get me wrong, I said primarily net new.”
PE: So does that mean you will transition some customers from X3 to Intacct? Isn’t that robbing Peter to pay Paul?
SG: “Some may move but it’s not my primary focus. Intacct will be for new Sage customers and the most important thing for me is there is no clear winner in the medium segment and I really do believe it’s a big opportunity.
“We’ve got a great message. We can say to people ‘here’s the value that we have in our products and the functionality that will make the difference to your organisation. And by the way, here’s a whole list of references and individuals that we know will absolutely stand by it’. If you take a strong financial product like we have with Intacct and then you go and wrap around all the services that you have with PwC – name me any organisation in the medium segment that has the footprint and the opportunity that a combination of those two could give you; there isn’t anybody.”
“Not only is our engagement level the highest it’s ever been but our attrition levels are the lowest they’ve ever been”
PE: What’s the one thing that you would like those CFOs and CIOs to know about Sage?
SG: “It’s simple, we’ve got your backs. Sage is a brand you can trust. We’ve got amazing products that work for businesses of all sizes whether they are in the small segment and use Sage 200 or larger enterprises that use X3 and Intacct.
“Nobody has the breadth, the experience, and the longevity of understanding the UK more than us. The fact that we’ve got our customer service, customer support, development, sales organisation, partner network and eco-system all here in the UK. We’ve got the largest number of customers and the most extensive network of accountants all on our side.
“The important thing for people to understand is that, when you’re out there looking for a partner, who’s going to have more experience than us?”