Part 3 of Finance Innovation – The First Major wave of Spreadsheet disruption, the Airbnb of spreadsheets

The spreadsheet phenomenon is pretty amazing. For one of the most used applications in the world (circa 1.2 billion cumulative Excel installations and probably 25 million financial modelers), it’s incredible how badly it’s still being used today and yet remains a very embedded part of our world. But most of you know this already. There are probably less than 2% that use Excel really well as financial modelers.

Spreadsheet errors are also a problem on global proportions, but because there is no simple (and cheap) answers to the problem (without creating new ones like inflexibility and high costs) the problem is often ignored or broadly accepted as the norm…much like paying expensive hotel fees or not experiencing the way of life in a new country from the inside of a fancy hotel before Airbnb was created.

The problem actually has nothing to do with the spreadsheet itself in my opinion, but more the framework of how it is used, which is different for every user. Unlike all other software packages, which have far greater systemised user interface (UI) and set parameters and restrictions, spreadsheets are a little bit of choose your own adventure.

There is no cheaper, more dynamic and “easy to use” application in the world. You can literally build almost any calculation from a basic budget to a complex balance guaranteed swap (derivative instrument that hedges prepayment risk on mortgage backed securities held by banks). The Swiss army knife of business tools (Excel) will fix any number of complex business problems.

With countless papers and research written on errors in spreadsheet, it keeps many businesses (including mine) afloat purely due to errors created by unskilled spreadsheeters and an unstructured framework to develop financial models that help in better decision making.

Little focus is given to software solutions that solve this spreadsheet conundrum as a result, but that’s all changing.

To summarise the problem of replacing the spreadsheet:

1. Very expensive systems will claim to solve the problem (but solve only part of the issue), most are unable to completely remove the need for spreadsheets and it’s powerful flexibility and rapid decision making. Ask your ERP solution seller if they have an export to Excel button (almost all do) and this tells you a lot. The business problems they are still unable to solve (therefore requiring the export to Excel button) include : a) scenario analysis to find an optimal decision, b) Monte Carlo simulation for probability weighted decision making across thousands of simulated outcomes, c) 3-way cash flow modelling for accurate break-even and cash runway estimation given specific customised business assumptions and logic, d) valuation and discounted cashflow analysis for the assessment of key investment decisions whether it’s a purchase, sale or capital expansion, e) capacity, resource, profitability and other forms of operational modeling to find the best mix of machines, effort, people and products by location. Running a business isn’t simple and accountants need to provide customised insight for key business decisions. Major M&A, project and infrastructure finance and other corporate finance decisions are still made using Excel. So why then are we short changing our complex business decision making capability by using inflexible systems?
2. The ability to teach the entire business world a new way of communicating is not easy. Imagine teaching everyone at home to start communicating in a new language. Now imagine doing that on a global scale? Possible? Perhaps it is, but not over night.
3. Those that are experts and most qualified to help are at times resistant to sharing content as it could cannibalises existing revenue, impact their title as the corporate modeling guru or perceived high value of their IP. Teaching others to do what they do is commercial suicide for traditional thinkers (which is totally expected) but not if you are innovative and a disrupter keen to learn, share and teach others. What you give to others you receive many times over.

But all is not lost, for those keen to learn, as the wave of change has started but not without plenty of resistance. The tipping point is getting much closer and first mover advantage will be game changing.

It’s pretty bold for me to call this an Airbnb moment. One doesn’t do so without valid justification. So here goes.

Airbnb

1. Sharing resources and efforts of others that benefits the collective and disrupts the minority oligopolists.
2. A cheaper and in many cases better value for customers than existing service providers. Being hosted by real people living at home gives you a better understanding of life in that city or town. In addition local knowledge that isn’t forced to push a particular tour guide operator or attraction is valuable. Airbnb puts control back in the hands of the customer who now has many more options available in terms of varied locations, length of stay and number of rooms or even an entire house that can be shared to further lower the cost. Wonder how many hotels will have space similar to an entire house.
3. In some cases the cheaper cost also delivers better and superior customer experience. Most Airbnb hosts try to offer hosts something extra. My family recently had access to an extensive DVD collection and unlimited free wi-fi at no extra cost. Wonder how much it would have cost in the hotel to watch just 1 movie and Wi-Fi is seldom unlimited.
4. A lot of people benefit and only a small minority are forced to face the stark reality of their status quo being completely disrupted and their gravy train stalled or even broken forever. HVS estimates the impact of Airbnb is around $450m of revenue annually.

Spreadsheet Innovation

1. World’s first content management system for Microsoft Excel has been created allowing many people to collaborate and share content on a platform. This is more than just sharing a template or repository for sharing models, this is about sharing scalable business logic that can be applied to any business whether they have 3 products or 300 products in a matter of clicks.
2. It is possible to build a 3 way integrated financial model cheaper than it’s ever been. From hundreds of thousands to tens of thousands of dollars. These spreadsheet models are also now capable of being rolled and integrated to cloud accounting via an API. Building models for users that they can then control and roll independently of the model developer means the control of maintaining it is handed back to the user, with a bit of training, upskilling and a user guide of course.
3. For the same reduced cost, it’s possible to give users a better interface that allows them to see the spreadsheet content visually (no Excel model does this today). In addition they have access to over 10,000 modular spreadsheet components, auditing tools and hundreds of errors checks and alerts combined with navigation using a table of contents. All of these aspects providea superior customer experience whilst keeping costs lower than ever before.
4. Small and medium size enterprises (the lifeblood of most economies, employing the most people and paying most of the nations taxes) can now access this previously price prohibitive service. Virtual CFOs have already started to offer this service that was previously unavailable enabling a lot of people to benefit.

Conclusion

If you want to find out more about this new wave of spreadsheet innovation please connect with me or visit www.modelcitizn.com

If you are stuck in your current role and wondering what is your next strategic move or skill you need to develop connect or subscribe….hint it will help you with financial modeling which is currently a big skills gap in Finance.

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There is no better time than now to get ahead and stay ahead of the curve. The data analytics and big data train has already departed and well on its way.

Don’t get left behind as this train won’t be at the station for long as your peers might decide to be ahead of the curve will continue to stay in front.