More specific needs have vendors “channeling” product design

In the beginning there was heaven and earth. Things like water and light took a little while longer. Nonprofit accounting software providers find themselves somewhere in the middle of the tech week of creation.

Basic functionality has been widely available for years and years. Sector-specific accommodations are becoming increasingly common. It’s only been recently, however, that software companies have proclaimed “Let there be light!”

Flat-file integration had long been the common way of nonprofit accounting, according to Dan Murphy, senior manager at Abila. Organizations might have had financial management and billing capabilities and the two might have even been able to integrate. There was one flexible system that could handle donor management, mailing, and billing — serving as a jack-of-all-trades but a master of none.

More tailor-fit solutions have come into high demand in the past few years. “What we’re seeing is reliance on technology to scale,” Murphy said. “Organizations can’t have generic technology. They have to have purpose-built technology…the past two years we’ve seen this as being highly preferred or required.”

The trend is called “channeling,” a move toward organizations seeking solutions that are unique and flexible not only to the broader nonprofit sector, but their specific subsector — health, education, etc. — and needs. Features such as cloud-to-cloud capabilities and synchronization with multiple systems are now not simply requested. They are expected.

The needs of an affordable housing nonprofit are an example of this shift in the market in action, Murphy said. Subsidized rent is likely a component of the nonprofit’s billing process, but it also plays into execution and performance metrics. Solutions that are capable of centralizing that information and sharing it between departments serving different purposes thus become more important.

This is especially true as nonprofits face a squeeze from regulators regarding both their bottom line and services provided. “As compliance gets more specific, a lot of people are looking beyond generic,” added Jenna Overbeck, the Austin, Texas-based company’s public relations and social media manager. “The need to track and pull reports — that’s been a big turning point.”

Murphy spends much of his time tracking the volume of activity customers are experiencing, speaking with customers, participating in usability sessions, and fielding requests from customers as well as resellers. From a product perspective, Abila has prioritized building out, according to Murphy. The company has developed a Partner Ecosystem of resellers, implementation partners, and product partners with products that complement, extend, or integrate with one or more of Abila’s products. Abila Marketplace was launched last year in an effort to help customers more easily find integration partners.

Blackbaud, too, has emphasized collaboration and strong application program interfaces (APIs) – products that can integrate with other products, said Tom Walker, financial solutions product manager. The balance Walker tries to find is determining and prioritizing where Blackbauad should allocate its resources.

In some cases, it might make more sense to look outside the Charleston, S.C., company, he said. Blackbaud is a strong accounting-solution fit for clinics, for instance, but that doesn’t mean that the company will take the next step and develop an electronic records system. It might not make sense.

“If you think of verticalization, it’s not just the four walls of Blackbaud, but who we can partner with,” Walker said. “What would it take me to build it? Can I get my executives to fund it…I’m going to go out and see who I can partner with or if it would make sense to acquire an organization.”

The ability to reach niches is important in today’s market, added Michael Blanton, senior product marketing manager. From a client’s perspective, there is value in using APIs to build off the strengths of different vendors as opposed to having to purchase a stack of products from one software company. Blackbaud might be able to fill an organization’s accounting or CRM needs and then connect to those specializing in other areas. Acquisitions also serve this purpose. MicroEdge, a grant administration product, was acquired to help serve a broader network of customers, Blanton said.

Verticalization has been a priority for Blackbaud for many years, Blanton said. K-12 education, for instance, has always been a market of emphasis for the company and solutions have long been tailored for the education space. That perspective has been ratchetted up further during the past few years, driven by a more nuanced market and increased connectivity of software.

Blackbaud is fresh off the heels of its annual conference and the things the market seems to be clamoring for are readability and connectivity, according to Blanton. Organizations are prioritizing better reporting, not just financial, but in services provided such as beds at a hospital or meals for a social-service provider. Integration is important in that, Blanton said, and a learning gap remains. Some organization staffs still struggle with adapting to the cloud.

The regulation crunch helps inform practices and partnerships, added Walker. Blackbaud, for instance, has be gun using Microsoft Office APIs to help organizations better connect journal entries with accounting. “If I can save them 20 minutes on this or 30 minutes on that…It’s focusing on efficiencies to help them do more with less,” he said.

Peter Stam, president of Needham, Mass.-based Accufund, also sees regulation as a driving force behind software specialization. More regulations equate to potentially less money available for services. With that comes important organizational decisions in terms of what client base they can best serve, who to focus on, and how to show compliance and success.

“I think that they are beginning to get more into performance reporting, the ability to include unit accounting or performance accounting. It is easier to see units served or expenses per unit,” Stam said. “More people are taking advantage of capabilities there.”

Accounts receivable billing has become very specific in some cases, according to Stam. In response, Accufund has looked to its customer base to gauge their needs and which variations to modules would be helpful. An example of this is client services. Users are prioritizing being able to track more client-level data, Stam said, in an effort to deduce how client bases affect the organizations’ bottom lines to help inform where additional funding is needed.

Stam has seen a market for specialization but he doesn’t think it’s a particularly new concept or one that is sweeping the market. Some products might fit better in some niches, he said, but products that can deliver accurate reporting in real time still tend to be the most successful. “[Customers] need numbers quickly, they need accurate numbers quickly,” said Stam. “When you live on razor-thin margins, there is no room for error.”

Focuses have, in turn, been on developing and marketing Accufund as a flexible, configurable product with detailed reporting and client-data capabilities. Stam sees Accufund and its competitor products specializing in the nonprofit market as increasingly valuable because “people are finding that the QuickBooks, the generic, horizontal products don’t have the reporting capacities that they need. That’s opening up more opportunities.”

Flexibility and configurability are the names of the game now, according to Donald Cassady, president and CEO of Grants Management Systems (GMS). Five years ago, most nonprofits were 100-percent budget driven. Today, as much, if not more, results-related data are being collected and sent to funders as opposed to financials. Organizations are, in turn, being asked to do more on thin margins. “Accountability has been there forever,” Cassady said. “Accountability is paramount when you are spending these kinds of dollars.”

GMS, based in Kensington, Md., has not ventured into dedicating itself to specific verticals, Cassady believing that it limits more customers than it would gain. In an era in which providers are more specialized and nobody does everything well, leaders at GMS have also shied away from building out too many ancillaries and have instead focused on being able to sync well with various APIs.

Mergers between organizations and nonprofit-corporate partnerships have also driven the need to be compatible. These types of moves have become increasingly common in the past two or three years, according to Cassady, and are necessary for cash-strapped organizations to survive. Software providers, in turn, are expected to accommodate integrations with organizations’ ancillary software or existing accounting software.

Even small soup kitchens, for example, don’t conduct manual payroll anymore, according to Cassady. So when a GMS client merges with that soup kitchen it is paramount that the product is flexible enough to hit the ground running.

The real-time needs of existing clients mirror the priorities of potential new ones. When GMS employees conduct demonstrations for prospective clients, the ability of the accounting software to connect with other software drives a good part of the conversation. “Any software that is out there right now needs to play well with others in order to survive,” Cassady said.

Jay Malik, CEO of Tangicloud, is a veteran of the nonprofit tech space, but is entering this new age of nonprofit accounting software with fresh eyes. Tangicloud, based in Littleton, Colo., gained access to OneNFP’s client list early last year. The deal wasn’t a product acquisition, Malik explained, and a new system based off Microsoft’s new Dynamics 365 technology had to be built. Product building began in March, followed by customer conversion in July, and complete conversion in August.

Malik said nonprofit and government clients have gravitated toward leased, cloud-based products for three particular reasons:

1) The cost of leasing is a predictable expense that can be plugged into budgets year to year;

2) Cloud-based software is generally up to date. Customers aren’t faced with the dilemma of buying a new system or continuing on with something that’s several years old; and;

3) The independence from having to manage servers and infrastructure. This benefit is harder to quantify, but is still significant, according to Malik.

Customers in Sudan, for instance, either can’t or don’t want to be responsible for the maintenance of expensive equipment. The cloud is safer in many ways, he said. Stateside, customers appreciate not having to tie up IT personnel in the management of servers, with one customer telling Malik that he would rather hire another accountant than an IT staffer.

The new age has also had the effect of broadening the marketplace with new price structures, Malik said. A decade ago, it might have cost between $50,000 and $100,000 to sign on and implement a new solution. The on-boarding phase is now down to $5,000 or $10,000, he said, making it easier to fit into organizational budgets. This cost is down for providers as well, Malik said, as customers are often able to on-board themselves with their own resources.

In turn, Tangicloud is able to zero-in on smaller organizations. Ten years ago Malik would have defined his customer base as those with $5 million in revenue or more. “Bending the cost curve, when you look at the United States nonprofit market, we’re now targeting $1 million and above, or even $250,000,” said Malik. “The number of organizations that we can reach is much greater. Smaller nonprofits need sophisticated functionality as much as large nonprofits because of compliance requirements.”

Aplos, headquartered in Fresno, Calif., caters to small and medium-sized nonprofits, those with $5 million or less in revenue. The company was pretty early to the game in targeting that market, according to Eric Nasalroad, chief operating officer. At the time, Aplos’ client base which was comprised of churches, booster clubs, and community groups was thrilled to just have quality fund accounting capabilities. Expectations have risen as time has gone on.

“They all have nuances,” Nasalroad said of Aplos’ customers. “They expect things that are nuanced. Even if they are smaller, they are shopping for those nuances.” Leaders at Aplos decided to keep product development rather lean. Instead of gearing toward a few key verticals, Aplos conducts customer interviews and fields requests while trying to build itself toward being more customizable as opposed to really specific.

Aplos built out feature sets on the fund-accounting side. Where it has been unable to meet requests, it has looked to fill gaps with API partners. Community Church Builder has served as the management complement to Apolos’ accounting solution in some cases, according to Nasalroad. Products like Kindful can be used by Aplos customers to handle donor management.

While Aplos leaders have tried to stay lean on the development side and avoid pigeon-holing the company into a specific vertical, ways to make the solution customizable have been created. For instance, Aplos has a feature that allows users to track specific expenditures department to department and location to location. The salary of a manager of five Boys & Girls Clubs might be split five ways, for example, Nasalroad said. Using the tracking capability, that expense can be followed across locations. Tracking can be similarly done with other activities, incomes, or expenditures.

Nasalroad said that for the smaller and start-up organizations that Aplos serves, the emphasis has been on starting out with basic software and adding on modules for things such as online donations as needed. “The software can grow with them without complicating things and it may grow differently than the customer that came in last week,” he said.