In 2008, I started my career as an accountant. I’d been studying accounting for eight years, since my second year of high school.
Yes, I knew the subject well, and I was good at it.
When I first started doing accounts at my firm, we used a collection of different software. Most of our clients used MYOB or Cash Manager, both of which were incredibly slow, clunky and looked like they’d been written in 1990 (because they had).
The process was this: I would email the client for the MYOB file. The client would open MYOB, export a file and email it to me. Sometimes it was the wrong file, so we did a little email ping pong until they got it right. Then I had to load the file on my office computer. There were about five different MYOB versions on our office server (that’s being generous, it was more like twelve), so I’d have to try a few before I got it working. Then I would export their ledgers, print them out, manually code them (as in, with a pen), and re-enter everything into our office software, which was called Solution 6. That whole process alone took a couple of days. Then I’d prepare all their accounts and finally spit everything out into a nice, printed annual report which we charged clients $20,000 for.
During that first year, I learned about a new accounting software called Xero. Xero’s key feature was it linked to clients’ internet banking accounts and automatically synced the two together. This completely eliminated the need for manual data entry, by both the client and myself. Xero was also cloud-based, which meant no more email export files. I could log in at xero.com and do my job – at home, in the office, or anywhere in the world. And lastly, because Xero was a complete accounting software, I could create their annual reports within Xero itself, without even exporting to my firm’s own (very expensive) accounting software.
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If that sounds like gibberish to you, here’s what it meant: If clients moved to Xero, it would save them potentially hundreds of hours in data entry time. It would also slash the amount of time accountants needed to do a client’s accounts, from 30 hours to about 8. And that would slash their $20,000 fee by a similar amount. It would totally decimate the accounting software industry.
I remember telling my colleagues about this. We talked about how it would make our data entry staff completely obsolete. It would bankrupt every other desktop accounting software. And, in many ways, it would make low-level accountants and bookkeepers obsolete too. It was like nothing the accounting industry had ever seen.
Soon after, I found out that Xero was, surprisingly, a public company. It had hardly any customers, was nowhere close to profit, but they had decided to IPO maybe two years earlier. The possibility that I could invest in it excited me.
Because many of my friends were also sharemarket junkies, I started excitedly telling them about Xero.
“Automated data feeds!”
Their eyes glossed over.
“No more MYOB export files! Instant access to tax details!”
“Dunno man, just sounds like normal accounting software to me.”
In investing, this is sometimes referred to as the knowledge gap. It basically means to have knowledge or information that most other people do not. Some knowledge gaps are illegal, such as a CEO who knows financial results before everyone else. You can’t act on those or you go to jail for insider trading. But many knowledge gaps arise due to someone simply being more educated or interested in a topic than others. Knowledge gaps are always present, everywhere, between everyone. But it’s when you find a big knowledge gap, that you can make a lot of money.
The knowledge gap between what accountants know about accounting software, and what anyone else knows about accounting software, is enormous. Why? Because accounting software is boring and irrelevant to almost every human being. I could look at Xero and say, “Every single accountant in the world is going to want to get their clients onto this” while everyone else looked at it and said “I don’t know anything about accounting software and I don’t care.” That’s as big a knowledge gap as you’re going to get.
So when I received my next paycheck, I bought my first parcel of Xero shares, at 77 cents per share.
Over the two years that followed I put the equivalent of about six entire paychecks on Xero. Every quarter their revenue grew, their customers grew, their software improved. About a year after I bought my first parcel of shares, my boss finally brought it up for the first time.
“So there’s this new software called Xero, we’re looking at trying it.”
Knowledge gap? More like knowledge grand canyon. Even my boss, the director of an international accounting firm, hadn’t heard of it.
The next ten years unfolded just like I thought. Xero went on to turn the accounting software industry on its head. Today it is a $4 billion company, has customers in over 180 countries, and has revenue of $300 million per year. As I write this, it’s share price is $34 per share, a 3,400% increase from it’s IPO price of $1. Just like that, six paychecks turned into 100 paychecks, and I wasn’t even surprised.
The reason I’m proud of this investment is, it wasn’t a lucky shot. I didn’t buy it on a stock tip or a Facebook article or because of a conversation in a bar. I told a lot of people about it, nobody was convinced. In fact, everybody told me that it was a risky stock and that it has no revenue and it’s “just accounting software”. When the share price hit $5, they were all telling me to sell. And at $8, and at $10, and at $15. When I still wasn’t selling at $20, they just thought I was crazy. I’d made almost 2,000% on my money, Xero still hadn’t made a profit, but I wouldn’t cash up. Because I knew, to the very last detail, why it was going to be big. If the knowledge gap is still there, hold the sail. There’s still room to go.
Last year, I did finally take profit and sell a big chunk of shares. But it wasn’t to buy a car or house. It was to invest in something else.
Just yesterday, I had a long conversation on Facebook with a friend. He’s a smart guy, a finance guy. He posted an article about Bitcoin being a scam, and I commented on it. This turned into a long thread, along with many of his friends, that continued for the entire day about money, government, banking and lots of other related things.
What I noticed was, trying to explain things felt exactly the same as when I tried to explain Xero’s automated feeds to my friends 10 years ago. People had no idea what I was talking about.
Was this the next big knowledge gap I’d been waiting for? Maybe.
I’ve spent the last six years of my life doing something pretty cool. I’ve been travelling the world full time, with almost all of that travel time spent in developing countries, and often doing non-profit work. I’ve also been reading a lot of books about blockchain technology, and one of the most talked about possibilities of this and cryptocurrency is to “bank the unbanked”. To understand why this matters, you need to understand who the unbanked are.
The unbanked are people who have been excluded from the finance world. They do not have bank accounts, they do not have access to credit, they do not have any way to save money. This is because the closest bank is maybe an hour away, on a long and uncomfortable bus ride. Moreover, you need two forms of ID to open an account. Most of them don’t even have one. Even if they did open an account, it’s impossible for them to visit the bank regularly. Keeping large amounts of cash is unsafe, so what do they do? They spend it. Their savings are nil. Often I need to send them money, and this is where the real pain starts. It’s not a simple bank transfer. It’s a painful and expensive debacle. They’re completely detached from modern finance.
How many people in the world do you think live like this? A few million? A hundred million?
It’s 3 billion people. Almost half the world.
I meet these people all the time, which is important, because if I’d never met them, I wouldn’t believe it. But I do meet them, and I spend time with them. I teach their kids, I spend entire months in their villages. I’ve spent more time during my travels in East Africa, teaching underprivileged kids, than any other part of the world. I know this demographic well.
Now, even though they don’t have bank accounts, let me tell you what many of them do have. They have a cheap Chinese smartphone. They have a little solar panel so they can charge it. And they have internet. This is all you need to send and receive cryptocurrency. So if they download a simple Bitcoin wallet on their phone, I can suddenly send them any amount of money, instantly, for almost-free. 3 billion people now have access to commerce. 3 billion lives change in a blink. That, is revolutionary.
But, how many people do you know without a bank account? How many days have you spent with people completely detached from commerce? Most Americans haven’t even left their country, let alone spent several years travelling through the developing world. This isn’t to gloat. It’s simply to explain, I’ve seen something a lot of people in my country haven’t. And that’s exactly how knowledge gaps happen.
I’m actually going to quote my friend here. I was explaining how powerful it was to no longer need wire transfers that costs $30 and takes three days. I told him when I sent crypto, the transfer was instant, and cost $1. He said he thought this was of “very little benefit and a lot more hassle, not exactly disruptive.”
Here we have a technology that could potentially revolutionise banking, revolutionise payments, revolutionise money itself. And my finance friend simply can’t see any benefit in it. He thinks it’s not exactly disruptive.
I’m far from a crypto expert, but, and this is to quote many experts, this could potentially be the most disruptive technology in my lifetime. Yet financial experts like my friend are saying it’s not exactly disruptive. Moreover, banking the unbanked is barely scratching the surface. Cryptocurrency has hundreds of potential uses, decentralising currency is merely a warm up.
So what’s going on here? It could be one of two things:
- Either I’m an idiot and have no idea what I’m talking about, or;
- This is the biggest knowledge gap I’ve seen in my life.
Either way, I believe in playing my cards when I believe in something, so that’s what I’m doing. I can’t say I’m putting six paychecks on it just yet, maybe just one. But something tells me this could turn out to be something very special.
Note: This is not financial advice. I am not your financial advisor. Crypto is an extremely risky and volatile asset class. Only invest what you can afford to lose. Always do your own research before investing. As a disclosure, I have long positions on a number of cryptocurrencies.