This evening I interviewed Rod Drury, CEO of Xero, to get his thoughts on where they are at. As noted previously the half year report was just released and it offered an opportune time for Rod to make some comments.

I started by talking to Rod about the Xero experience – from offer documents to actual figures. Rod was pleasantly surprised that both cost and revenue sides of the offer document have played out. It’s always easy to “stick your finger in the air” and make projections but it’s nice when you execute and achieve the aims. One thing Xero has been surprised at is the overwhelming buy-in from the accountancy fraternity. Rod made the comment that accountants are notoriously suspicious of software companies and Xero, being a SaaS product, has some real advantages here in that the accountants can see the product development rapidly reacting to their comments and criticisms.

Now that accountants are on board, Rod was keen to reinforce that the next period of time will see Xero build on their product base, and add to it a greater sales and marketing competency. Xero is poised to take advantage of the network effects and Rod (and I) are interested to see who will step up and become the network aggregator for SMEs. Rod commented that the jury is still out (Facebook/MS deal notwithstanding) as to who holds the power – the channel or the application.

In terms of the sales and marketing roadmap, Rod commented that, while the IPO built good enterprise credibility, there is still a lot of work to be done to connect to the SMEs (who don’t tend to read too many prospectii, busy as they are doing the business). Rod said that its all about articulating the value proposition and showing the value add from the product.

In terms of revenue growth globally, UK entry will be similar to that in New Zealand, with a limited release to build credibility and scale, Hamish Edwards has been in the UK for the past couple of months building the relationships, especially those with the banks that Xero enjoys here in New Zealand. Rod did say that the offshore rollouts will be somewhat more automated and hands off than those in New Zealand – in that respect NZ has been a good test bed to develop the systems and processes and those can now be scaled and automated.

On a positive note, Rod commented on the value of having Rowan involved to crunch the numbers (lover of analysis that he is) this has allowed for a very low churn rate and some planning about engaging customers to really make use of, derive the extra value from and, hopefully, become recommenders of, the product.

Some quotes that seemed worth mentioning;

On building a global SaaS accounting company – “It won’t happen overnight but it will happen”

and on SaaS and the ISVs – “the global leaders of tomorrow are not the vendors of today”

Lastly, and in a “oh isn’t that nice” vain, Rod commented on his pleasure at being able to give young people the chance to specialise at a high level and that this is one of the benefits of a well resourced operation – “it’s just more fun”.

Cheers Rod and I look forward to talking further.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • I like the Xero concept and seemingly great execution. Will it produce the goods for IPO investors – time will tell I guess.

    I noted in their half year results operating income of $170k from taxpayer grants.

    Well blow me down – end of period cash balance of $13+m, interest earned of $319k. Granted, largely from the IPO, but do they really need taxpayer subsidies?

  • Shane –

    I believe the system is all about building scale and developing new businesses and technologies. I don’t believe it should be skewed in favour of entities without the means but i should e skewed towards those who can execute.

    I’ll pass your comment onto NZTE and request that they respond here

  • A fair question on the Government grants. We applied at the very beginning of Xero – before the IPO. Not just for the cash but for the kudo’s of getting through the process.

    I have been lobbying FRST that they should actually do them as convertible notes rather than pure grants so that on a successful exit the money can be paid back and reapplied to the next group of companies.

    However we have paid a bunch of tax over many year, created plenty of new jobs that pay tax, and put a lot of time through NZTE into other companies so on balance I don’t loose sleep over it.

    It’s a subject that is worth debating though.

  • Thanks for the reply Rod – your convertible note concept is kind of Kiva-ish but a great concept. How do other think about potentially well funded companies utilising taxpayer funded grants?

  • Rod said…
    However we have paid a bunch of tax over many year, created plenty of new jobs that pay tax, and put a lot of time through NZTE into other companies so on balance I don’t loose sleep over it.

    Well said Rod. Your grant is your own money that was taken off from you with force by the State in the first place (a.k.a taxation).

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.