In our latest CEO interview, we talk to Sam O’Connor, CEO of freelance accountancy companion Coconut.
The Coconut accountancy app aims to make life easier for self-employed people and freelancers by using open banking to take the pressure off small business accounting and bookkeeping.
Why did you decide to set up Coconut?
My business partner, Adam Goodall, and I worked together in accountancy at PWC, then left to found our first fintech business. We ended up selling that business which we started in 2014, and after we worked for the company that acquired us for a couple of years, we wanted to do something entrepreneurial again and so both joined the self-employed community.
It was interesting at that time because people didn’t really think of the self-employed community as distinct from the small business community and it was a drum that we’ve been banging since then. Over time, that understanding and awareness has developed with, the likes of Andreessen Horowitz talking about the passion economy and the gig economy starting to emerge and, a focus on online sellers and platforms that connect professionals to businesses to do freelance work.
It was really clear to us that there was this change or shift in the workforce and we wanted to pool our experience in accounting, banking and fintech to really plug a gap that we found, which was around the third piece of work that you do. The first piece is finding work, the second piece is doing work, and the third piece is managing your business. That’s why we started it.
What makes Coconut stand out from all the other self-employed finance apps on the market like Xero or Clear Books? What’s your USP within the marketplace?
What we identified was that really, cloud accounting is the main product that’s available for doing your accounting and tax, and we set out with the vision to make self-employment easier than being employed and a crucial part of that is the financial side of running a business.
Our short-term mission is to build the ultimate accounting and tax tool for self-employed people. We found was Xero and QuickBooks, or cloud accounting as a thing, was created more than ten years ago when smartphone penetration was under 20%. So they were an innovation that was really a transition from the old CD-ROM type accounting systems to the cloud.
What that meant is they’ve naturally focused on bigger businesses, so 10+ employees. The first thing you’re often asked to do is set up your chartered accounts for instance. Smartphones have become much more prevalent, you’ve got much more open data in terms of open banking so it makes way for something that’s much more mobile-focused, much more real-time and a lot less data entry heavy, and that’s really where we come in.
The first thing that happens when you open your Coconut account is you connect up your current account and we extract the data over 24 months and apply what we call our accounting intelligence to it so you’ve got business insights that you would never see in Xero, QuickBooks or FreeAgent within minutes of coming into the app.
The same revolution’s happened in banking where people realise that actually, those instant nudges that you get through notifications and that thinking around the real-time nature of financial information is really flowing through our app. Whereas, the mobile apps of the cloud accounting packages are really a kind of an afterthought.
What’s been the best part of running Coconut since you set it up?
I think starting a new project and building a product and really connecting with customers on something that they need is a really rewarding thing to do as a job. So I’ve enjoyed that element of it.
But the other piece of it that’s really cool is just the team that we’ve built up over the course of the last three years, from our first employee, Alistair Crossley, or Ali, as he’s known, who’s our CTA, to the team of 15 that we have, we’ve just had a really fun time.
It really starts to show how good your team is when something like COVID kicks off because suddenly, you’re faced with these monumental challenges from you can’t meet face to face anymore, to delaying our crowdfunding, to figuring out what the future looks like and how we can support our customers during this time.
Just watching how everyone rallied around and got excited about new projects, started working remotely has just been a testament to how fantastic they all are. So for me, it’s just about I hope you really enjoy coming to a work on a Monday. Yeah, it’s very rewarding
What about the worst part? There’s always a biggish challenge to overcome when you’re setting up a business. What’s been the hardest part so far?
The hardest part is really knowing what to prioritise.
There’s so many ideas and so many things that customers want us to do, but as a team of 15, we don’t have the resources to do everything all in one. Every one of us is itching to get all of the features that people are asking for and the features that we know deep down that we need to build done, but each one takes time to do well.
You’ve got to let things marinade, you’ve got to test things properly with customers, you’ve got to not rush things, because if you do rush things, it’s counterproductive.
Addressing that balance where you’re like, we need to get things done fast, but we also need to get things done well I think is one of the biggest challenges.
How was the crowdfunding aspect of the business? How was it getting the business started? Did you have investors you could tap into straight away or was it a long, old slog?
Well, our original crowdfunding on Crowdcube was in 2018 and I really didn’t know how well it was going to go because, with all of these things, it’s difficult to gauge, but we were clear that we had a strong community and generally speaking if there’s a community that believes in what you’re doing and benefit from it, it’s a good model for crowdfunding.
So for us, equity crowdfunding is really about giving our customers who are most engaged a sort of vested interest and benefit of our success, and consequently, it becomes a virtuous cycle. But also, it’s about amplifying the message of what we’re doing.
To launch the original crowdfund and to realise that we were probably going to hit our project and then, go 400% over our target was quite amazing. Then to get a really engaged audience of 2,000 people who ultimately become promoters of what you’re doing, supporters, testers, is a really exciting thing.
Now Coconut is crowdfunding on Crowdcube again, the team is once again really excited about the campaign, because fundraising as a business, particularly for a CEO, is quite a naturally outward-looking project, where you’re detaching yourself purposefully from the business and going and talking to investors and really not focused on delivering great products, features, comms and all that kind of stuff.
But when you do a crowdfunding campaign, it’s totally switched the other way. The whole business rallies behind it, we have our best ideas, we have our most efficient periods and our most engaged kind of work, and so it’s really cool.
From your point of view, as a business person and an entrepreneur, do you have any recommendations that can help freelancers or those setting up a business manage their money better?
I think the first thing, and one of the most critical points of being self-employed is when you start because a lot of people start self-employment and potentially take too much risk at the outset, and consequently, quite quickly find that it hasn’t worked out.
So the first and main thing that you need to do is find your market, and so we’d always recommend building up a bit of a client base or some sales outside of your normal job, if you have one, or whatever your normal income is, and then really starting to build your processes around that, with a view to focusing wholeheartedly on growing your income to the point at which you’re sustainable. Then you’re de-risking that initial very, very stressful period by not putting all your eggs in one basket.
The second thing for us is an obvious one, it’s just stay on top of your income and expenses and make sure you’re setting aside the right amount for tax.
People often get to the end of the year, have to submit their tax, and that becomes a surprise and a cash flow problem for them, and so it’s another period where it can create quite a lot of stress. On top of that, there are things like payments on account that you need to do, and they often surprise people.
So whilst the benefits of say using a product like Coconut are more than just staying on top of that stuff, running your business operations in order means that you’re able to focus on the really important stuff around growing your business and doing great work.
Sam O’Connor is CEO of Coconut an accounting and tax tool for self-employed people
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.