Profitably has a New Name, "ActiveCell" : Analyzing & Interpreting QuickBooks Data

ExactCPA Comment: As the 'fiscal cliff' countdown proceeds,  there's not a lot of news out there between Christmas and New Years.   However something did find its way to our mailbox today, some info about start up that was doing some innovative things with QuickBooks,  that company?  "Profitably" has new life and obtained $88,888 in financing - and taken on a new name, "ActiveCell".   Odd on a couple levels but true, you can see that by clicking here.   The number 8 is considered to be a lucky number by Chinese and other Asian cultures - however I thought Profitability needed at least one more 8 boosting their the funding closer to $1Million and funding of less than $100K being announced? You don't really see that these days.    Some background and the pitch, "Profitably is small business analytics, simplified. The product provides a simple and intuitive view into your QuickBooks data along with tools to drive growth and manage profitability. Traditional business intelligence platforms are expensive and unwieldy, and can take months to set up. Profitably takes a different approach. The application connects securely to QuickBooks, and within minutes you see 100+ analytics, where  you’re making money and where you’re losing money…why…and what you can do about it".   Theoretically a very attractive  tool for accountants, bookkeepers, small business consultants, and advisors of all kinds.

It all sounds great, right?  Well it did not go so great the first time around and Ben Popper for Venture Beat chronicled exactly why last March.  Profitably, a startup trying to bring deep financial analytics to small and medium businesses, was founded two years ago, in March of 2010. Exactly one year ago this week we reported that the company raised $1.1 million in seed funding to grow its team.  But in the last week, things have gone from bad to worse, leaving CEO Adam Neary as the only full-time employee still with the company.  The company was part of the first class at New York’s General Assembly, and Neary recorded in detail how being a part of the hot co-working space helped to double the size of their seed round. Profitably pulled financial data from a service like Quickbooks and showed small business owners where they were succeeding and what their trouble spots were. Then it offered concrete recommendations for how to build on that success.

Sources began reaching out last week to say something was up with Profitably. When I first heard the company was in trouble, I contacted Neary to get his perspective on what was happening. The rumor was the company was shutting down. He responded by email:

It’s really not that simple. I definitely appreciate you reaching out to me ahead of publishing. The reality is, we’re signing up 200-250 small businesses every week. We’ve just rebuilt our platform from the bottom up to handle all the traffic we’re seeing, and right now we’re making some tough personnel decisions in terms of setting ourselves up for the next phase of the company’s growth.   The above is not a throwaway PR line–it’s where we are. The members of our team have wives. We have children at home. We’ve all left very lucrative careers to try to do our best to build a product for the country’s small businesses, it’s tough work, and none of these decisions are being made lightly.  Bottom line–it wouldn’t be appropriate for me to get into the details of various staffing decisions we’re making right now, but please give me the benefit of the doubt that it’s not as simple as “you laid off most employees and are bootstrapping.” Given the traction we’ve been seeing and a number of fantastic partnerships we’re pursuing, that would obviously paint a false picture of where the company stands and gloss over some pretty subtle stuff.  I’m doing my best to show everybody involved as much respect as possible–I hope you do the same!   Warm regards, Adam

It was difficult for me to sort out the discrepancy between Neary’s email and what I had heard. I knew that one of the company’s co-founders, CTO Francis Hwang, had left in November, and the rest of the team had left or been let go last week. Shortly after I got hold of an email from Neary himself, written to investors. It paints a different portrait of what happened, and where the company might go from here. The email from Neary is after the jump.

From: Adam Neary

Date: Tue, Mar 20, 2012 at 3:53 PM

Subject: Tough news for Profitably

Team, I have some bad news. Profitably has survived a lot of ups and downs, but last week was a rough one.

Quite a week

It’s amazing to me how fast things can change. We just finished a re-build of the entire back end and front end of our app. The work was hard, but we rallied as a team and got it done. We celebrated on Tuesday with a BBQ lunch and demoed the results to David Mars, who was quite pleased. In fact, we have been talking with David for some time about $650k in bridge financing that would take us comfortably through the end of 2012 and beyond. On Tuesday I felt confident that we could secure that funding and that the team was really cranking. On Tuesday, it felt like we were there, and I think I exhaled for the first time in 7 months. Less than 24 hours later, Chad–a co-founder in our company–offered his “two week notice.” It was abrupt and unexpected. To be honest, I was shocked not only at the decision but at how cavalierly he delivered the message, and that certainly didn’t go unnoticed by the rest of the guys, either, as I will explain.

People work at will, though, right?

Yes and no. Cofounders leaving companies are watershed events. Back in November, when we had to send Francis on his way, I asked each member of the team to reflect on their commitment. I could explain to our customers, partners, and investors the reason why people might leave at that point, but future drop offs over the following several months could kill this thing…”so if you’re gonna leave in the next six months, I need you to leave now” was the name of the game. Everyone spent a couple days thinking, and I was very pleased when each member individually reaffirmed their commitment to the team, including Chad. David and I even chose to grant extra options to each of the guys as a thank you for that commitment, and we got back to work. In light of this, you can understand why Eric was so turned off with the way Chad handled himself. Eric spoke to me the next morning…seeing Chad take off like that really sapped the wind out of his sails. He had been working way too hard for a company where a founding member doesn’t have enough respect for his peers to make sure his exit is stable. His confidence was sapped, and he wasn’t sure if we’d be able to raise funds at this point, so he was out. At this point, Ned in turn followed suit. If Chad and Eric were out, we wouldn’t be able to raise funds, and that’s that. Understandably, Graham then had little choice. He has two kids at home, after all. I regret the decisions Eric, Ned, and Graham felt compelled to make, but I give them credit in earnest for showing me respect on the way out. So, on Tuesday evening we’ve got a brand new product, a new wave of customer signups, channel partners we’re pursuing, relative financial security, and a productive team. Thursday at noon…I am the only employee left. I can still hardly believe it.

So what now?

I’d be lying if I didn’t reveal a little emotion in this email, and I hope you don’t hold it against me. I figured there’s nothing worse than sending an upbeat or robotic email about something so visceral. So, you get a window into that hard reality. At the same time, my commitment to you hasn’t faltered. You all put your hard-earned cash on the table and took a risk with me. And I made a commitment to you that I would work my ass off for you and stop at nothing until we figure it out. And when the dust settles and you look at what we’ve got, hell. We might not have a team left, but we have a killer product that’s just been rebuilt. We’ve got customers continuing to sign up left and right. And we’ve got old-fashioned persistence. I am going to keep fighting the fight. From here on out, we’re bootstrapping with what we’ve got, and I am going to do my damnedest to make something of it. There are already potential acquirers at the table, and David Mars and I are setting up meetings this week. If the timing isn’t right I am going to keep fixing what’s broken and push forward.

I am sorry for the bad news. I really am. -Adam

Is this the whole truth? We emailed Chad Pugh, the co-founder whose departure Neary blames for the companies unraveling. “The decision to leave Profitably was not handled lightly by me,” Pugh replied. “I took care to leave the team in a good spot. I continue to believe in the product, stand behind it and wish it and its investors continued success.”

 The person who forwarded Neary’s letter to investors wrote, “Interesting take on reality.” Chatting with an investor today we heard more of the same. “This isn’t transparency,” the investor growled. “How about telling me how much of our money you have left and if you’re planning on giving any back. Everything is going great, but everybody quit? That’s hard to swallow.”   The part that Neary left out in his letter? According to sources, after Pugh departed Neary gave employees an ultimatum: 24 hours to decide if they were in or out for the long haul, even if that meant no more salary without a new fundraise, which seemed unlikely. Given that binary choice, they elected to abandon ship.

ExactCPA Comment:  Some of the real world difficulties with startups are not pretty,and that's what you're seeing here.   We want to bring some attention to ActiveCell, but felt the need to fully disclose all we were aware of with ActivecCell.    These kind of problems are not uncommon in the world of tech start ups.....let's turn the page, it's a New Year, and hey, they have the magic of the 8's behind them.   It's very possible ExactCPA may seek to "beta" ActiveCell in 2013, - the software and model in theory is rather impressive -  we'll see.

CCH Small Firm Services Urges Tax Pros to Reach Out

BY DANIEL HOOD for Web cpa/accounting today:  With Congress and the Obama administration apparently unable to reach a deal over the fiscal cliff and a wide variety of unresolved issues in tax legislation, “What preparers need to do with John Q. Public is to send them e-mails and communicate with them to show how it will affect them personally,” Gramlich said in an interview. “A lot of people don’t like to think about their tax situation until it’s tax time. They may or may not understand the consequences going back and forth between Congress and the White House — hence the need to keep communicating. You need to personalize it. When they get an e-mail from their accountant or tax preparer explaining what the fiscal cliff means for them, they might open it up and read it.”

It’s a strategy CCH SFS plans to follow, as well: “This year, more than a normal year, it’s communicate, communicate, communicate,” Gramlich said. “We’ve started a series of e-mails; we’ve taped a video session with me and we’ll do another one in January. We also created a Fiscal Cliff Resource Center for our customers to go out and grab information to learn how it will affect them.”  The Fiscal Cliff Resource Center includes a wide range of white papers, articles and videos explaining the cliff and its potential impact on tax preparers and taxpayers. The company has also sent out letters to its customers to keep them up to date on the latest in Washington negotiations and legislative changes, and how they’ll affect the upcoming tax season.

At the moment, the shape of next tax season is highly uncertainfiscal cliff debate. “We were hoping to know [on Friday], but now it looks like we won’t know anything earlier than next Wednesday, post-Christmas,” Gramlich said. “We could quickly get to the end of the year without any movement.”   “The big thing impacting individuals is the Alternative Minimum Tax patch, and if they don’t agree on the patch we revert to the pre-Bush era amount,” he explained, which could potentially affect more than 30 million taxpayers.

“If I were a preparer, I’d be looking at that. That’s the one thing they have to agree on. This could end up being like 2010, where we agree to disagree and just extend everything,” he said. “From what we’ve heard from the IRS, the season is still going to start as planned -- January 7 for business returns, and January 22 for individual e-file returns. But if the IRS has to go back and reprogram around this patch, it’s going to seriously delay those returns.” It’s impossible to say how long that delay might last, Gramlich said, but “I’ve heard mid-March -- we hope they’re quicker, but they’re not going to process those before March.”

However, he pointed out that no matter how late the season starts, the IRS will not push back the April 15 final filing date.  With that in mind, he suggested the preparers get ready to perform a type of triage on their customers: “As a preparer, I’d look to prioritizing my return set based on my client base, to figure out which ones I can complete, and maybe pushing back those who are going to be or might be in the AMT.”

Should the season be significantly delayed, the IRS will be doing something similar, he said: “Behind the scenes, they’ll ask some of the major players how many returns we’ll send at one time. They will ask the three or four big ones to stagger their returns when they submit. They’ll say, ‘We can handle millions a day, but can we handle tens of millions a day?’”

Looking forward

In addition to closely following legislative change in Washington, and keeping in close contact with the IRS, CCH SFS is also working on a number of state initiatives to keep its customers up to date on changes at that level.

The company will also continue to update the materials in its Fiscal Cliff Resource Center, and in the Marketing Resource Center it created earlier this year to help tax preparers market themselves.  “We’ve also significantly increased our number of customer service reps,” Gramlich said. “So we’ll have more people on the phone for whenever the bubble of transactions occurs.”   They’ll also continue to work closely with the IRS. “We’re always looking at their real-time tax system, with more and more verifications up front, and we’re trying to help with that -- real-time matching of source documents with what’s on the return. The IRS is making progress on that.”

Looking beyond tax season, Gramlich sees still other issues to work on. “Later on in the year, we’re going to need to talk about the health care reform act, and what exactly does it mean. We’re on those committees and staying in touch with that, and the IRS has really reached out to the IT community on all those, and on real-time matching and preventing fraud, and to help them work through the impact of health care reform on a go-forward basis.”

ExactCPA Comment:  Time is running out on the fiscal cliff discussions.  In a week (but hopefully less), we'll finally know whether or not we're going over the cliff.  Whether some agreement is reached on the tax laws currently in place, or whether tax rates are allowed to return to the pre-Bush legislation rates.  With all of the potential changes to the tax law, this could prove to be one of the most challenging tax seasons yet for tax practitioners.  With all of the uncertainty surrounding the fiscal cliff, year-end tax planning has already proven to be especially challenging.  Many tax advisors are recommending that their clients accelerate income into 2012, while deferring deductions to later years in order to prepare for the possibility that tax rates will rise in the coming year.  While many of the changes won't be felt until taxpayers file their 2013 tax returns in 2014, there are potential changes that could have a more immediate impact.  The payroll tax is poised to rise from its current 4.2% to its previous position of 6.2%.  This could mean that someone earning $50,000 per year could see a reduction of $80 in each paycheck going forward. (assuming a single taxpayer with zero allowances)  This could have a significant impact on working families.  The AMT (Alternative Minimum Tax) change slated to take effect on January 1st, returning the exemption amount to pre-Bush amounts, could have significant impact on the IRS, tax advisors, and taxpayers alike.  The upcoming  few weeks is going to be a crucial time in the tax world.  It is more important than ever for tax advisors to keep their clients in the loop on how the pending legislation might impact them.