Bonus Interview: Wayne Chang of Digits

Blake sits down with Wayne Chang, founder and CEO of Digits, to learn why investors gave Digits $65 million at a $565 million valuation — for a financial reporting tool with as yet no paying customers.

Blake Oliver: I never had a client ask me for better reports, for a better reporting tool. So, that to me seems like a vitamin in a way. How is Digits a painkiller?

Wayne Chang: The pain that it solves is the fact that it takes a lot of time to prepare each of these reports. So, it cuts down the time to get these reports to customers dramatically. I did a demo before launch to an accountant, and for the first time in my whole career, and I love building products that people love to use that delight them, there weren't just a wow reaction, there was little tears of joy.

Blake Oliver: Hello everyone, and welcome to a special interview episode. I am Blake Oliver, CPA, your host, and I am joined today by Wayne Chang, founder of Digits. Wayne, thanks so much for joining me.

Wayne Chang: Thanks for having me.

Blake Oliver: So, Wayne, Digits came on my radar last year. Recently, it was the $65 million raise at a $565 Million valuation, as reported in TechCrunch, to bring a more dynamic, automated approach to legacy accounting tools. And as somebody who sits at the intersection of accounting technology, this blew my mind. The idea that a new app is coming into our space, one that nobody really seems to have ever used cloaked in mystery that raises $65 million and at a half a billion-dollar valuation, which would make Digits more valuable than half of the accounting firms on the top 25 list that accounting today puts together given traditional accounting firm valuations. So, Wayne, welcome to the show. I'd love for you to explain what Digits is and how do you justify the valuation of $565 million for what looks to be like a reporting app to me?

Wayne Chang: Yeah. Yeah, great. Great question. So first, our mission and what we're doing here at Digits is like we are trying to build tools for accountants. Very, very similar to Adobe, creating tools for the creative professionals with Photoshop, with Illustrator. So, we're trying to do the very same for accountants. We're giving them tools that never before existed. And it turns out building those tools, the way that we're envisioning it, is incredibly hard.

And so, you're talking about like shrouded in mystery, shrouded intrigue. It's been very, very deliberate. We've assembled some really, really incredible people on the team, ranging from engineering to design to our advisory board of accountants around us to build these tools for accountants. Our mission is to enable all the accountants in the US and hopefully across the world with the tools that we're building. And so last year. we announced the Digits Search, which is the first of its kind instant search for your books, for your statements, all collated together instantly, no work needed.

And then two weeks ago, we just announced Digits Reports, which is the ability to issue your monthly reports at a click of a button. And so, it's another tool not meant to replace accountants, but more to enable and enhance accountants. So, we even do fun things like… The tool will pre-write some executive summaries that you can then edit versus just having a blank sheet of paper.

Blake Oliver: So, there have been reporting tools in the accounting technology space for, well, ever since I started in this world, which was, I don't know, 12 years ago at this point. And to be honest, in my own experience, I've never found any of them to be 'must haves.' They were always 'nice to haves;' maybe I would use them for a specific client or a specific set of clients, but I never found anything that could beat what I could do in Excel for my clients.

And that still seems to be the dominant way that people do reporting for clients in accounting. We export into Excel, and we customize the reports from there, or we just go with whatever is outputted by QuickBooks or Xero or NetSuite or Intact. With all the competition in the space, there have been plenty of apps doing this forever, like Fathom, Spotlight Reporting, Syft Analytics, Reach Reporting, Futrli, LivePlan. I could go on.

And I used to work at one called Jirav, where reporting was a big component of what we did. What is different about Digits that's going to make it breakthrough and be worth half a billion dollars?

Wayne Chang: Yeah. With Digits Report specifically, the most recent tool that we launched, the benefits are manyfold. So, a couple of days ago was the end of the month for a lot of different businesses. And so, the bookkeepers and the accountants that want to send these reports out, they have two choices at the moment.

They can either do it themselves through Excel or through QuickBooks and do all the calculations themselves, or they can use a tool like Digital Reports. They come on, they click generate, and instantly they do it. We've seen, since the launch, we have several firms where accountants are coming in, they're linking their QuickBooks, they're just clicking generate, generate, generate, generate, they review it, and then they send it to the clients. And so, instead of closing one book or sending one report that takes many hours, you can close or send these reports all at once at a click, these interactive, super in-depth type of reports that are sent out.

It's not meant to replace Excel, it's meant to be one of those things where it's a huge timesaver if you want to use it. If you're a company that requires really sophisticated reporting, really sophisticated custom modeling, go for Excel is your thing. But if you have a client that's just very... every month is the same, every month is something that's cookie cutter, there's nothing that really requires Excel at all, and you just want to send those monthly reports, we're great for that use case and we're continuing to develop more features to expand on Digits Reports offering.

Blake Oliver: So, what are my clients getting when I send them reports from Digits Reports?

Wayne Chang: Great question. Yeah. So, Digits Report Builder is for the accountant. Our tagline is "Drag Drop Done." On Digits Reports Builder, you click on a toolbar, and it slides open. And then instead of having to do all the calculations... like, "Oh, what do these charts look like?" All of those are done for you. You just drag that onto the report itself.

What your client sees is very much a read-only type, almost like... think of the traditional P&L report that they normally get, except now they get the ability to hover, to discover where they can just see. "Okay, here are the seven different vendors that are contributing to marketing." I can just ask questions right there. All of this took no time from the accountant, from the bookkeeper, because all they clicked was just generate. Again, not meant to replace Excel and then to really handle the clients that specific workflow is really great for.

Blake Oliver: So, I was watching an interview you did on YouTube a few years ago in which you describe that you like to build products that are painkillers as opposed to vitamins?

Wayne Chang: Yes.

Blake Oliver: And thinking back on my own experiences in public accounting, I never had a client ask me for better reports, for a better reporting tool. So that, to me, seems like a vitamin in a way. How is Digits a painkiller?

Wayne Chang: Digits Reports was birthed through a lot of conversations with accountants. The pain that it solves is the fact that it takes a lot of time to prepare each of these reports. In order to figure out all of the different vendors from bank statements to credit card statements, Digits does that for you. It'll know the difference between Uber and UberConference, Uber and Uber Eats. It'll do all of the collation. It'll do all of the demystifying into the actual vendors. And then those vendors are categorized as well, and then the insights are generated.

So, it cuts down the time to get these reports to customers dramatically. So, the pain point is right there. I did a demo before launch to an accountant, and for the first time in my whole career, and I love building products that people love to use that delight them, there weren't just a wow reaction, there was little tears of joy. It was great because we had that on video, but it felt that we actually solve the major pain point for them.

Blake Oliver: You mentioned insights. What sort of insights are you generating with these reports?

Wayne Chang: There are several ones that we'll continue to invest in them. The one thing... there was a response to a blank slate problem that accountants had, which was, "Hey, great, I can generate these reports and there's how to discover and that's great, but at the end of the month, I want to be able to send them maybe the top five things that they need to worry about."

And so, we took a crack at, hey, are there some surface-level stuff that we can just give to the accountants to prompt them. We don't have the context of the entire business, nor do we want or pretend to, but they're nice little hints, they're nice little things, so that way the accountant can start from a foundational base of data versus having nothing and then just having to do all that analysis themselves.

Blake Oliver: So, what would be an example of one of those insights?

Wayne Chang: One of the insights would be, "Hey, your marketing spend went down driven by less spend on Facebook and LinkedIn, 24% less on Facebook and LinkedIn, something like that," where they didn't have to do any analysis on that and surface that for them. Whether or not that's useful to the end client is for the accountant to decide. We'll surface that up, and it's editable. It's just text that we surface up as. They can modify the language if it's not their tone, they can delete the whole thing. But having that pre-typed for them, accountants have told us that it's a great reminder.

Blake Oliver: So, it seems like the value prop is normally I'd have to go into QuickBooks, I'd have to export these reports and send them to my client. You're offering me a way to do that for all my clients all at once, rather than having to go in individually. And then you're surfacing some of these insights, what is driving changes in spend in different accounts and it could be different vendors. So, I'm no longer having to dig in and see if it was LinkedIn, or it was Facebook in this marketing and advertising expense account.

Wayne Chang: Yeah. And this is in response to the business side as well where their clients that are receiving it. They have questions that are like, "Hey, I get this in-the-moment P&L, and it says, that my spend on this is $80K. Is that good? Is that bad? There's no context." And so, we developed something called Hover to Discover. You just simply mouse over that one line, and it'll show you how it's broken down and how it compares to previous months.

This gives them that context to be, "Oh, spend's actually up. We should probably watch that," or "Spend's actually down. Okay, that's a good thing." And all of this with no work from the accounting side and for the business side, they just have to mouse over it and they see that context right away.

Blake Oliver: So, what is your background in accounting like? How did you decide to go from founding a company that specialized in crash analytics for mobile apps? That was your big exit was Crashlytics, which I understand was an app that allowed app developers to figure out why their apps were crashing and solve those problems. Accounting is very different than that. Why?

Wayne Chang: Totally. Yeah.

Blake Oliver: What makes you qualified to come in and show all these other reporting app developers how it's done?

Wayne Chang: We don't presume to show the other apps how it's done. We don't take that perspective at all. Jeff and I, we started Crashlytics, and Crashlytics currently is on 99.2% of all mobile devices. So, if you have an iPhone, if you have an Android, Craslytics is on there. And the perspective we have is like, can we create something that can take really complex data from a lot of different sources and distill the insight for them?

With Crashlytics and crash reporting, we were getting billions of reports constantly and we had to be able to distill that down into like, "Hey, this area of this app or this single line of code is causing that crash." With financial reporting, the volume is actually much, much smaller. But the problem is in a different area. The problem is we have to make sure that we understand the data as it occurs.

So, for instance, if there's a change in marketing and you overspent the marketing, what is the impact of that to your runway? What does that mean when it comes to your headcount? What does that mean when it comes to other areas of the business? And currently, the way that we found is that it's a very manual process that it's almost like after-the-fact analysis, and we wondered, is there a way if we could do this in real-time?

And so we created what we call the living model. So, when a change occurs, the model constantly updates itself right away. And then this means that we can proactively let you know, "Hey, you hired more than you thought, or marketing overspent. It's going to impact them this way." And we know that instantaneously versus weeks after the fact.

And in terms of the accounting knowledge, Jeff, and I, we don't come from accounting background, and so we recognize that right away from upfront. And so, we partnered with hundreds of different firms to work with over the last few years to develop this. And we raised from some of the best firms in order to enable this type of learning for us. And so, we're very, very excited to now bring these next-generation tools powered by the living model to the market.

Blake Oliver: So, one of the challenges I always had with reporting to clients is that it sounds like a lot of what you're doing is variance analysis. You're helping us to understand how accounts are changing over time. So, marketing and advertising spend is up this month, it's down this month. Here's why. And you're getting the why from the split among the different vendors.

But when I reported that in practice to my clients, a lot of times that would just lead to more questions. So, the question would be, for instance, "Well, what should our marketing and advertising expense be?" And I, as the account, didn't have any answers to that, or maybe it wasn't caused by a particular change in a vendor, it was just that it was up overall, maybe their Google ad spend was up or something like that.

But none of that information, to actually answer that question, was in the accounting system. Like same thing with wage data. You could say salaries and wages are up due to an increase in like the account. There's just one account maybe where we are tracking salaries and wages. And to find out why that's not in QuickBooks. Why did salaries and wages go up?

So, I'm a bit of a skeptic when it comes to like this idea that we're going to get all sorts of amazing insights from the accounting data, because in ten years of this, doing this with clients, I've never encountered any app that could do that magically. So, I'm naturally very skeptical when I hear Digits gets this amazing valuation for this product.

And when I look at it, I go in there and I look, I see P&L, balance sheet statement of cash flows. Yes, I can hover over different items and see the trend, which is really neat. QuickBooks should have that built in. But how is this really amazingly different? Or is there something that's coming that's going to change my mind in that regard?

Wayne Chang: I think the perspectives are very different here. At the end of the day, Digits is building these tools through software for accountants. And so, we're not meant to identify why the wages went up. That's for the accountant to know. Our goal here is to surface that up for the accountants because, in the absence of that, they have to manually calculate it. Like you said, they have to go to Excel, they have to manually calculate this.

Imagine that across a dozen different clients. For us, it's to reduce that time. And some of our accountant clients have said to us, "Hey, Digits Reports has saved us three to five hours per client per month." Is it perfect? Of course not. This is our first release of this report and there's so much coming down the line that it's really fun to talk about when that comes. But our goal here is to save the accountants time, is to enable them to do even more. Our goal is not to replace them. Our goal is not to say, "Hey, we know better than accountants." It's not that at all. We want to build better tools for accountants.

Blake Oliver: So, what does this cost?

Wayne Chang: It's free.

Blake Oliver: Digits Reports is free?

Wayne Chang: Digits Reports is free; Digits Search is free. Our goal here is to build tools leveraging that living model technology that we've built. And since you did mention it, there is another tool that we're going to be launching in June, June-ish, and we're going to announce it at BKX, is one of them, and then possibly at Scaling New Heights the week after.

Our goal is that this new technology living model enables a new class of tools for accountants that we're excited to get in the hands of these accountants. And our early shows of these tools that have yet to be launched. They're resonating. They're helping them. Again, not trying to replace people, we're trying to give them tools that other professions have. Other professions have a lot of startups, or a lot of companies focus on building tools for them. The accounting industry could use a lot more of that, and we're excited to be part of the industry to work with accountants.

Blake Oliver: So, Digits Reports is free. How are you guys going to make money?

Wayne Chang: That's a great question. I mean, this is not my first startup and I've done a bunch before. And so, one of the first things that we always care about first is like, can we build a product that solves a major pain point first? Can we get that and solve it for a lot of people?

And the second thing is, okay, great. How do we make it sustainable? How do we make money off of that? How to make profit, all that kind of stuff? We're still in the first tranche, which is, hey, can we build these tools that are useful for the industry, that are useful to accountants?

And so, my hope here is that, like Blake, at some point, I hope that we release a tool that you're like, "Oh, this is great. I see this value now. I see that." And so that's our hope and our goal. The revenue and the profit side, we will announce that at some later point. Our goal right now is we want to create tools that accountants love.

Blake Oliver: Well, I can totally see the value of Digits Reports as a free tool where I can send all of my reports from QuickBooks to my clients in one place and not have to go in and do it for every client. I can totally see the time savings, especially if I'm exporting QuickBooks reports into Excel and compiling them in a workbook and then having to email that which is insecure or having to send it through the portal. That's something that I think we're all familiar with.

Anyone who's done that at scale, and I have because I was a manager in an accounting firm where I was responsible for doing the financial reporting for a dozen clients, we know just how time-consuming that is. So, there's definitely value there. Yeah, my skepticism maybe was around the idea that, like, is this always going to be free? If I put all of my clients on the Digits Reports, am I suddenly going to have to pay at some point when Digits is more mature? Like, how could this possibly be real? Professional skepticism is one of our core attributes as accountants. So, I'm a natural skeptic.

Wayne Chang: Which is great. Which is great. Something that we found as we entered into the space and building these tools is that we have to build that trust with accountants. We have to build these relationships with accountants. And we found that there's this feeling of technology in industry that that existed before we arrived. And it feels like the accounting industry sort of has a little bit of corporate PTSD from the thrashing from the different firms. And we totally get that. We understand that.

And so, we want to approach it in a different way here, which is like we're not building things saying, "We know better than you." We're building things, saying, "Hey, we want to understand the needs that you have, the pain that you have collectively, and we want to build the small little tool that solves that one pain.”

In this particular case with Digits Report is not meant to be the end-all-be-end reporting tool. Not at all. It's meant to be, hey, for the bookkeepers and accountants that handle the swath of small, medium business reports, they're taking a lot of time. And we hear that loud and clear. Can we make something that's one-click generate in an editable so at least they can get that to their clients and then we can build better relationships with them?

At the end of the day, that's our goal is can we build these tools or solve these pain points that we identify are like really drastic pain points and give it to them and work with them to make them even more useful.

Blake Oliver: Well, I have to give you credit. I think you have identified a very big pain point, especially for small practices that serve a lot of clients, like high volume. You just can't do it manually. And I experienced this pain myself. So, credit to you for doing that. And I think it's very exciting, actually. It's really neat to have somebody come into this space from outside and shake things up because we have been doing things the same way and the same solutions have been out there for quite a while now and we haven't had a lot of new ones pop up. And you're very well-funded, which means you can do a lot and obviously like very ambitious.

Wayne Chang: I hear the valuation brought up here a bunch. We don't focus on the valuation; we really focus on the runway of Digits. And something that was really important to us is in order to build that trust, in order to earn that trust, in order to build these relationships with industry, we need a pretty long horizon in order to build up the tools to service them as well.

And so, we raised the capital we did because accounting is one of the biggest industries out there. It has a huge history. It's not spanning decades. We're talking about like hundreds of years. And so, we're not going to come in here in 2022, release a product and be like, "We know better." Not at all.

We're coming here being like, "Hey, we found this major pain point with a small little tool that can maybe help some of your clients in that way, that small use case, and we'd love to hear your feedback, and we'd love to make it better," but accountants in the knowledge and profession, we respect that tremendously. Our goal here is to build small, little tools that can just make the day a lot faster, a lot easier, a lot more pleasant to go through.

Blake Oliver: And it's really nice to hear that. And I like to make fun of these valuations because I understand, as somebody who's been in both accounting and marketing, it's a game to get the attention-grabbing headlines. You've got to go out there to TechCrunch and say, "We have a $600 billion valuation," something nuts. And we all know, as accountants, all the accountants and finance people know this is all crap. This is not real, it's imaginary.

So I appreciate you, I guess, understanding that we're skeptics. But I don't know. It's like the idea that for free, I could automate the reporting for my whole set of clients. We'll hold you to that, though. Wayne, is this always going to be free? Because there's a huge switching cost associated with running an accounting firm and this is where the trust comes in. If I put my clients onto this thing and I explain to them how to work it and then I have to change it a year later, a lot of us have been burned by that.

Wayne Chang: Yeah.

Blake Oliver: A lot of us have been burned by the switching costs that cause clients to become dissatisfied. So, we are reluctant to try new things because we don't know if it's going to be around or if it's going to continue to be the same price.

Wayne Chang: I hear you. So, Digits Reports will always be free and for all the clients. And that's something that we're committed to. Digits Search is the same way as well. If you haven't tried Digits Search, you've got to try it. It is phenomenally fast. Again, it's free. You link up your QuickBooks, you link up your account on Plaid. Digits does all everything for you. Just type in what you need to do, that's free. Any type of charging or any type of pricing plan that comes, that will be communicated way in advance. There will be no surprises. We learned this and executed on set Crashlytics as well. Crashlytics was also free. And before we charge for anything, if there's any type of planning of charging, we communicate that to our customers.

Customer relationships is something that matters a lot to me personally. And it's under my side of the house at Digits. We don't want surprises. We care deeply about the relationships between accountants and their clients. And that's why we built Digits Reports to be visually stunning so that when you give it to your clients, you feel proud giving that to your client, and then it improves the relationship there, hopefully. And so, before any planning, charging, any pricing, any metering, things like that, there'll be plenty of communication. There'll be options to opt-out if you need to and things like that. But again, our goal here is to really make your relationships with your clients better.

Blake Oliver: I have been speaking with Wayne Chang, founder of Digits. Wayne, thanks for your time.

Wayne Chang: Thank you so much, Blake.

Bonus Interview: Wayne Chang of Digits
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