XERO : Kiwi Startup Does Impossible: Makes Accounting Fun

My Say & Andrew Ferrier for Forbes writes: Challenging older, slower companies is all in a day’s work to many technology start-ups—and nowhere more so than in New Zealand.  A dual Canadian/NZ citizen, I relocated to New Zealand nearly 10 years ago to lead its biggest company, multinational dairy giant Fonterra, and have spent the last decade watching this country successfully compete in the global economy.  While New Zealand has a population smaller than Los Angeles, local software companies are becoming known for demonstrating a nimbleness mirroring the entrepreneurial spirit of the Kiwi nation itself. That is, they are quick to deliver innovation, and more economically powerful than size might suggest.
In my observation, companies from New Zealand, recently named Forbes “Best Country for Business”, share a cultural focus on speed to market and problem-solving.

For example, Xero, which makes accounting software for small businesses, is emerging as the number one challenger to Quickbooks in the U.S. market. Its next step is taking on industry monolith Intuit, by endearing itself to business owners who profess that Xero software “makes accounting fun.”  The company’s easy-to-use product creates a one-stop shop for small businesses to perform routine accounting functions. When the owner is often also the one keeping the books, simplifying functions like bank reconciliations, invoicing, bill paying, payroll and expense claims can be like a gift from the heavens.  Or the cloud….Xero’s cloud-based functionality also increases accessibility, as small business customers and their accountants alike are able to access the company’s financial information anywhere, anytime.
So how does a seven-year old company from this small country take on the industry’s two largest players?  Xero, co-founder and New Zealand serial entrepreneur, Rod Drury, asserts that for Internet-based businesses, the paradigm is “the fast eats the slow,” and company size – or home-market size – is no longer a determining factor in success.
In fact, incumbent companies of a certain size (read: larger firms) are many times sandbagged by legacy constraints like outdated technology platforms or high overhead costs.   Newer, smaller companies can be more agile – and Xero does so within a quintessentially “Kiwi” paradigm that its leaders – and other New Zealand business owners – say provides an inherent edge.

The Need for (Global) Speed
Due to our small domestic market, Kiwi companies are focused on building and exporting the best product in the world – not just on our own shores—and getting it there quickly.  This speed-to-market mindset pervades our most successful companies.
In the case of Xero, Drury and his co-founder, Hamish Edwards, set out to build a software program that is “beautiful”, and to get small businesses excited about accounting.  Yes: excited about accounting. I know that is counter-intuitive, but that’s exactly the point – to develop an enterprise software program that mimics some of the best products developed for the consumer market when it comes to usability and design.

A 2012 Xero hire from Intuit notes: “It was like a Mac – a balance between simplicity and elegance.  Everything I wanted to see, and only what I wanted to see, was in one place.  It wasn’t cluttered, bloated, or confusing.  As I dove in further, it got even better.” Comments from Xero users such as the following — “I think I may love Xero a bit too much. It’s addictive. And fun. Which for an accounting system must be unusual!” – has helped the company reach 120,000 customers, doubling every year. This year’s   revenue figure for the first six months already exceeds the previous 12 months.

As all entrepreneurs know, designing a stellar product is only half the challenge–you need capital to grow.  Interestingly in the case of Xero, New Zealand’s picturesque scenery and ‘adventure capital’ status has been a major factor in the company’s success. Xero investor and PayPal co-founder Peter Thiel fell in love with New Zealand as a tourist and began engaging with the local business community after purchasing a vacation home here.  To date, he and others have invested more than $100 million into Xero.

So, what’s next?  After spending $50 – $70 million to bring the software and its parent company fully in the cloud, Drury is just getting started.  He believes that the next wave of technology innovation will be focused on small business market solutions, and he’s positioning Xero to capitalize on this trend by providing 24/7 global coverage to customers, from over 320 employees worldwide and counting.  His sights are set on connecting small businesses to more and more financial services, with Xero serving as the hub in an app ecosystem, in a similar way that Apple connected app developers with their customers.  Another challenge is to leverage Xero’s “big data” – so far the company has processed over $140 billion in transactions – to develop more innovative services for small businesses based on their spending habits.

Like many serial entrepreneurs, the success of Xero can’t be fully expressed in financial terms for Drury.  His pervading goal is to develop something purposeful.  With small businesses being the largest contributor to Gross Domestic Product in most – if not all – countries, he wants to help make them more productive, which will have an impact in every part of the economy.

Entrepreneurs – regardless of location – have the ability to take on incumbents by changing the rules of the game, and delivering a better product, in timeframes that respond to customer needs.  And incumbents will struggle to catch up due to legacy constraints.  In Xero’s case, they set out to make accounting fun, after realizing that small business owners and accountants are looking to be engaged and entertained with technology in their professional lives as much as their personal lives.  And they are doing it the Kiwi way – solving problems, and delivering faster than the competition.