Xeroing in on success - Xero

Online accounting software provider Xero is going from strength to strength. Capability New Zealand (CNZ) got founder and chief executive Rod Drury chatting to find out how they did it.

After Trademe, the bar was set. You know, they did a $750 million dollar deal. So we wanted to make a $1 billion dollar business, says Xero’s chief executive Rod Drury. Hamish [Edwards] and I talked about it for a while. We built a good, capable team around us – great programmers, developers, and designers that we specifically targeted – and a great operational team. Alistair Grigg, who was the CIO of Air New Zealand, came in to run tech and operations. We got good advice from the people on our Board.

On this page: The Xero approach Helping small businesses Rod Drury’s advice

The Xero approach

We specifically designed it so that we had the resources to put an operations team in there, with Alistair on board, I could focus on being an entrepreneur. Entrepreneurs aren’t good managers. They tend to frustrate the hell out of people – always chasing the next deal, waving their arms around and doing strategy. The entrepreneur’s got the big picture; but it always works better if you’ve got a complementary team.

Software as a service is all about getting your early adopters on board, and maximizing the network effect – we were always building for tens of thousands of customers.

It’s hard, hard work but what we’re doing is absolutely working. The last year saw the biggest growth – we tripled our revenue and grew our customer base from 6,000 to 17,000 customers. There’s operational back-office stuff you have to do for that too. We built the foundations that would allow for scalable growth, and hopefully we will crack that over the next year, having done the really hard part.

One of the best pieces of advice I’ve been given is from the Aftermail [an email archiving software company Rod setup and sold before starting Xero] days, when someone said to me, “You’ll be surprised at how long it takes your competitors to react.” And I have been seeing that trend – it’s harder for bigger, more complex businesses to do stuff – whereas small, nimble businesses can get stuff done.

Helping small businesses

If you look at GDP and break it up, 38% of our country’s GDP is from small business. So when I think about raising productivity across that sector, a crucial step is moving data to the cloud, so an adviser can work on the business alongside you.

The barrier to advice before tools like Xero was the price, and getting the data was a delayed process. Now you can have a shared business plan, where everyone can easily see the numbers, so the cost of advice is much less now. The Internet is allowing collaboration to happen in a way that wasn’t possible before.

I think people like talking about their businesses – they’re immersed in it, and so it makes for an interesting conversation. And people always seem to be asking for help. It really helps any business to have a trained outsider looking at your numbers and opportunities, who can say to you, “Stop doing this activity, it’s not making money – do this instead.”

Rod Drury’s advice

• Get your shareholder’s agreement right at the beginning.
• Raise enough capital to be successful.
• You learn so many lessons from prior experience – how to build a profile, how to network... Hopefully you make less mistakes the next time.

With Xero, we knew what we were doing because of the similar experiences we’d had before. What we didn’t know how to do, we got help with, from lawyers and merchant banking teams.

If you like people, and you’re interested in them, and you like connecting, networking is really easy. You’re always looking at paying it forward. You might come across someone, and think of someone else, then flick an email intro saying, “You guys should talk.” And you get that back.

So networking is about thinking about things from another person’s perspective, and wondering how you can help them out. Making connections that add value between people is a great way to build your network, because you then become valuable to people.

I think when it comes to outside advice, you’re always listening, but essentially you’re just testing that advice against your own existing assumptions.

Once you’re more experienced as an entrepreneur, you gain more confidence in your judgment, but you still want to test your perspective against someone else’s because you always know that you might be wrong.

Over time, I think you do get this deep belief that you can spot an opportunity. But a business opportunity isn’t just about building something; it’s also about selling it. You learn to ask yourself how money will come from it – how will I take investors from here, to there.

You’ve got to be able to recognise whether a certain opportunity has business potential. If it doesn’t, you’ve got to know when to acknowledge that and just walk away.

Business Drill-down

• Business type: Accounting software
• Main products: Online accounting software for Mac, iPhone and Windows that gives companies and advisers easy access to business bank transactions, invoices, and reports.
• Number of staff: 90 full-time
• Trading since: 2007
• Main markets: Small to medium enterprises in Auckland, Wellington, Christchurch, London, and Melbourne.
• Website: www.xero.com

• This information is provided by CapabilityNZ
  
  www.capabilitynz.org