ScaleFactor

» see scalefactor.com as it lived, on the wayback machine

~ the obit ~

On 23 June 2020 ScaleFactor's hundred employees were called into a town hall and told that half of them were leaving that day. About ten would stay until the end of August to close the books on the company itself. Kurt Rathmann gave the news to Forbes the same day and gave the reason as well: the pandemic had arrived in March, small businesses had stopped buying, and sales were down by half.

Eleven months earlier the same company had announced $60 million led by Coatue, which took the total raised to $103 million inside a single year and put the valuation at $360 million. The ladder up had been quick. A $370,000 angel round in 2015, $2.5 million of seed money through Techstars Austin in 2017, $10 million the following year with Canaan and Citi Ventures in it, then $30 million from Bessemer and the Coatue round on top of that.

What the money was buying, according to the pitch, was accounting that ran itself. Connect your bank and your payroll, and the software would categorize the transactions, reconcile the accounts and hand you clean books with no human in the loop. Rathmann was an accountant by training, the finance person at a restaurant group before this, and he was selling the thing he had personally hated doing.

~ the rap sheet ~

~ what the automation was ~

Forbes went back to the story on 20 July 2020 and talked to former employees. The books were being done by people. Dozens of accountants at the Austin headquarters and an outsourced office in the Philippines were doing the categorizing and the reconciling manually, at the speed humans do that, while the company told investors it had built the software to do it. Some customers got books back late. Some got them back wrong and had to pay somebody else to fix them.

That is not an unusual way for an automation company to start. Doing the work by hand first is a normal way to learn what the software has to handle. The failure was further along: the manual stage never ended, the sales team kept selling against a product that did not exist yet, and when customers left, the numbers showing it were kept out of view.

~ the covid line ~

March 2020 was a real shock for a company whose customers were restaurants and small retailers, so the explanation Rathmann gave was plausible on its face and went largely unchallenged for a month. It survived exactly as long as it took one reporter to call the people who had worked there.

I have never incorporated a company in the United States and I have never had a bookkeeper, so the service itself sits a long way from anything I had use for. What traveled was the sentence in the Forbes follow-up about the accountants in the Philippines, which went around engineering circles everywhere, mine included. That was 2020, four years before this became a familiar news story with other names attached.

~ what is left ~

scalefactor.com answers today with a 404 reading "Site is not available". Austin kept the people: ScaleFactor had been one of the city's loud successes, and the engineers it hired with the $103 million mostly stayed in town and went elsewhere.

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