Showing posts with label Xero Ltd. Show all posts
Showing posts with label Xero Ltd. Show all posts

Monday, February 19, 2018

Rod Drury's Xero: Share Investor Interview 2018




In our previous time together in 2010 Xero was a much smaller company with 17,000 subscribers.
It is bigger now with subscribers passing the 1 million mark in March 2017 but the enthusiasm that Rod Drury had for the company is intact and as they approach the 1.5 million mark it seems to me that it would be a good time to revisit Rod.
It would be a great idea to find out where he sees the company he runs, looks at itself in the next five years.
Well look at the problems, the solutions and all the up and downs of what makes New Zealand’s biggest Tech company tick and what will possibly make one day one of this country’s largest with one of the largest number of employees and employers to the world in general.
Reader Questions

Matt Thomas - How do you plan to penetrate the important US market and respond to major competition in that market as you progress over 5 or so years?
We are a global platform and the US is just one part of this story. Our growth is not dependent on the US market and we can afford to be patient as we invest to extend our leadership outside of North America while we are make considered investments inside the US.   
The US is a major english speaking opportunity with a largely unserved market of customers sitting inside accounting firms. These potential customers are not and have never used an incumbents product. Our aim is to win a share of these by executing the playbook proven in NZ, AU and UK - product fit, build the accountants channel and connect the banks.
We know from experience that the accounting channel is the pathway to success, as accountants and bookkeepers become advocates for Xero, they add customers and over the long-term this lowers acquisition costs, increases lifetime value and minimises churn. We’ve launched partner products,  including Xero HQ and continue to build differentiating accounting partner integrations through our API, and have begun integrating the major banks. This along with the accountant feedback indicates the US market is about investing time and being patient as we scale the channel.

Evan Wilson - There appears to be a lot of opportunity in SE Asia, and I’ve heard of great awareness in Singapore.  What are the plans to accelerate growth in this region?  Previously the model was to employ a leadership team in-country, is this a likely scenarios (if not already in place)?

We’re making great progress in South East Asia. In 2016 we opened our Singapore office and are opening in Hong Kong around the end of March. Alex Campbell our Asia managing director is there on the ground with a sales team doing a fantastic job. Our most recent Asia roadshows took place in January and they were all sell out events.

We are continuing to advance in localising the product for Singapore and in talks with the Government there as they push cloud initiatives in the compliance space, for example. Globally, tax platforms are being re-platformed to the cloud and Asia are looking at Australia as an example. We’ve been really successful in building our cloud tax solution in Australia - we’re the market leader with the only online comprehensive solution - so we’re best placed to leverage this experience in a place like Singapore and further drive growth and enhance experience for our partners. We also connect with HSBC, CIMB, DBS and other financial institutions in Asia which is core to our strategy.

The UK (finally) seems to be performing well, what are the conditions that have most contributed to this?


The UK is a really exciting market for us. We have strong UK subscriber growth with quality revenue growth of 49% in the last interim period and in September 2017 we hit 250,000 UK subscribers. We are the leading cloud accounting software provider for small businesses in the market and we have the highest number of banking and fintech integrations versus our competition. Our UK managing director Gary Turner has built a strong partner channel working with 45 of the 50 largest accounting firms in the UK. The regulatory environment is changing in the UK too which excites us with Making Tax Digital, the digitisation of tax, which kicks in from April 2019, and PSD2. The acceleration in market adoption of cloud is well in our favour in this region. This is down to the fact that it’s the same playbook as the AU and NZ markets, being product fit, accountants channel and banking connections. It’s important to note that the UK was delayed by the Global Financial Crisis which impacted on banks investing to connect however that’s now done and we have the scale in the accountants channel that you can see the compound growth coming through.



Share Investor

When will we see a really big push into non-English speaking places, India and China two obvious examples or are they not on Xero’s radar or are Xero efforts focused on Britain and the US or are you well established everywhere now and its just a case that each country has its own problems and its just a case of ticking them off as they come up?

We’re focusing on Commonwealth countries first and then when multilingual kicks in, focusing on areas such as Canada and Western Europe. Xero is already used in more than 180 countries and there are opportunities beyond geographical expansion that are on our radar which will help Xero’s growth trajectory.

With refreshment in business an ongoing thing - changes in management - How long will you stay as CEO?

We’ve built up an exceptional globally distributed leadership team, which allows me to be able to focus on driving our strategic goals rather than being so much in the day to day activities. This means I’m constantly working on different projects, allowing me to be to focus on what’s over the horizon. I’m still having fun.

What do you see as the major driver of business now that you have passed the 1 million customer mark in 10 years and when do Xero as a whole see the 2 million mark passed?

Xero is a multidimensional business and a global platform, we have many drivers of the business growth. We’re expecting further geographical expansion as we introduce multilingual capabilities in the next few years. As well as continuing to build our platform and the network of connecting our small businesses to banks, advisors and each other.
We’ve revitalised our employee expenses and reimbursement product redesigning it for the front office, taking advantage of AI and machine learning to make the entire expense process easier and more automated than ever, ensuring employees file their expenses more frequently and directly into Xero
We believe that the future of finance is collaboration. The market is growing and diversifying (both domestically and through international connections) too quickly for any one company to provide all services. Working together through partnerships, information and data sharing, and integration of new products and services is the only way to provide the right experience for a customer, and the best outcomes for banks.

 Given our scale, we are now a major conduit for economic activity globally. Particularly in markets where we have a strong presence such as Australia. With the aggregated, anonymous data from our more than 500,000 Australian subscribers we were able to get a snapshot of the sector’s health. We’ve called this the Australian Business Insights. With this scale of data there are huge growth opportunities for us as we are the only truly global small business platform.

I personally would like to see a listing within 5 years, when will we see a listing on the Nasdaq?

Another listing is not something we are considering at this time. We’re focussed on our sole ASX listing completed on 5 February and delivering on our milestones.

Besides turning up at work every day what gives you that kick in the pants to go that little bit further. Basically what gets you motivated?

We get to build software that makes a difference to millions of people.   It’s taken us 11 years to build an awesome accounting tool, now we can now start doing the fun stuff with AI and Machine Learning and build all sorts of new applications over our platform. The sky is the limit.

Do you still have that competitive edge over your competition or have you found others have caught up to you or even passing you in this highly competitive industry?

We are the leading global small business platform, we’re moving beyond accounting. We have been in the cloud since day one and since replatforming on AWS, our single code base has allowed us to maintain a competitive edge and move even further beyond our competitors globally - building the next generation of tools and the power of the Xero platform, connecting a network and ecosystem around Xero. The competition is a few years behind us and still trying to migrate parts of the customer base from desktop, their focus is fragmented compared to Xero which was born in the cloud and built on a single code base. We think the category changes massively over the next few years.

The US market was brought up earlier. I just wanted to ask is this market going to be a tough one - meaning will you have to raise more capital or can you rest somewhat knowing you have the best goddamn software on the block and it is just a case of getting that message out there?

Xero is managing the business to cash flow break-even within its current cash balance The US market is a key part of our strategy and but a single market doesn’t determine the success of the Xero story. We have been open that we have moderated investment and not invested ahead of the curve there. We have a lot of growth opportunities we are leveraging and other key regions that are really taking off. Focus is on the three pillars in our playbook: banks, the partner channel and product market fit.

Once a person has migrated all their business over to Xero from the competition is it hard to go back to the competition. What I’m saying is what sort of things are you doing to make customers loyal?

Yes accounting products are very sticky - the churn levels in the established ANZ markets are well under 1% and lower than natural death rates of small businesses (around 15%). We liken it to transactional banking, as in you rarely move between banks. Once the customer has their data in the Xero ledger, real time visibility on incomings and outgoings, making payments and doing payroll on the software, they’re more unlikely to move.

You mentioned when we did a Q & A back in 2010 that you were a big fan of Apple and their strategy but their secrecy and arrogance was wrong do you still think that? If you do fine but they would be a great formal partner for Xero don’t you agree and what sort of other partnerships with like minded companies perhaps even Google or Amazon could we see with Xero in the future?

We definitely see the benefits of partnering with big global players like these where appropriate as it gives us greater exposure and we can develop innovative solutions for our users. For example, we worked with Apple on an integration that gives Xero customers that use Stripe as a payment service the ability to pay Xero invoices with Apple Pay.  
Xero has subscribers in more than 180 countries and many of these are now doing business across borders not just in their home countries. This is made possible through advances in online technology and global marketplaces like Amazon and Facebook.
This has allowed for the globalisation of small businesses which have grown up without the need to operate within the confines of a single country’s borders.
Only a global platform – on a single global code base like Xero – can offer the opportunity for small businesses and their advisors to expand their businesses offshore, connect to banks in multiple countries.
It also allows small businesses to use Xero’s platform and payment partnerships with Google, Apple, Square, Paypal, Stripe and others to do business seamlessly all over the world. It sets in motion a global network effect as small businesses expand their trade between countries.
Our experience has shown that partnerships are no substitute for the hard work you need to do to build a market.

With the above in mind could you perhaps give my readers a current partner and how you interact with them?

Because we had big growth ambitions from day one we had to think globally from the beginning. Which is why our whole company operates on G-Suite. We have Google Chromeboxes in every meeting room, we work out of Google docs which are great for collaboration and I’m reachable by anyone in our organisation by Hangout. We partnered with Google early on and linked Xero to a number of Google features which keeps us on their radar for new product announcements.

What do you think about the recent increase in “internet chatter” and what I would call hype on the topic of crypto currencies and do you think crypto currencies have a future somewhere within the Xero model?

Governments are unlikely to allow an unregulated currency over time so we don’t see a big future for crypto currencies. We are interested in blockchain for when you have multiple strong actors in a network and see opportunities in banking we are looking at.
I left Hawkesbay in the early 80's and keep going back. What keeps you in New Zealand/Havelock North when you could live in the thick of it all in silicon valley?

I travel to the big global centres frequently and have no desire to live in any of them. I find the combination of living in New Zealand and operating globally is pretty special. I think we have an advantage of being outside of the US bubble which has allowed us to build a truly global company.


 Rods grit, nerve, tenacity and personalty are ingrained into the Xero culture.
You can feel his imprint over everything and that's not a bad thing.
He has an answer for any question you put to him. Tis a damn shame there were not more questions for him from my readers.
The above really encapsulates where the company is heading, how its going to get there and what may happen once there.
I believe in, for want of a better phrase, the cult of Rod Drury/Xero. I  haven't really been convinced from the start but now Im totally sold.
If I had a business I would definitely buy Xero.
And the stock?
Well at $32.00 odd dollars ill wait until a profit is announced.
I want to end on an upbeat note except to say it was a pleasure dealing with him and wish him well for whatever the future brings.
I see big things in store for Xero. If Rod stays and even if he goes his personal convictions are strong and that is one element of Xero success. The other factor is the people that Rod has around him. From his peers within Xero to his partners around the world.
He certainly has put the right people together to form a cohesive Global unit.





c Share Investor 2018






Posted by Share Investor at 11:20 AM 0 comments

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Wednesday, January 10, 2018

Xero 2 : Interview with Rod Drury Coming - Reader Questions Submitted


Image result for rod drury

I'm going to do this again. Ill put this out there until January 31 2018 and I am going to do it with or without you - I would prefer it was with you.

 I've secured an Interview with Rod Drury, from Xero Ltd. It will be in the form of questions put to Rod about his company via email. 

 Where to from here and why. 

 What I want from you dear reader is questions. Relevant ones, please. 

 Put your questions down here and I will submit them.

 Either email questions @ shareinvestornz@gmail.com or leave the at the bottom of this post.

 Thanks,

 Darren.




Share Investor Q  As 

Convention Centre proposal interview with Sky City CEO Nigel Morrison


c Share Investor 2017


Posted by Share Investor at 8:30 AM 0 comments

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Tuesday, May 9, 2017

Xero: I've Changed my View



Xero 2017 Earnings

 Well that's it. I finally have come around and now I'm starting to like Xero Ltd [XRO.NZX].

 I previously hated it as an investment. Loved it as a company always have because its founder is from Hawkes Bay and I originate from the same parts.

 Rod Drury really is a man with a PASSION. 

 It looks like to me that this passion is continuing to rub off on people.

 My brother Tony Rickard owns a business down there, East Coast Powder Coaters and just recently has switched on over to Xero.

 Hes a particular luddite and for him to move on over to Xero from what he previously used is no mean feat. I wonder if it's his wife Helen who's responsible for this.

 Whether they make a profit or not is part of the mystery. I don't know. Don't think Rod knows either. That was forecast 5 years ago.

 I just think if he can get my brother Tony using their software, he can get anyone - given time. That includes the rest of the world. If you have met him and I have on several occasions you just have to ask him about Xero and that's it, you have a one way conversation. He's passionate and I think because i havent even seen the software, there's a bloody good reason for this. It's good.

 Anyway Tony's made the move.

 I think it's because of the simplicity of the actual product. Its simple. Simple as that.

 My bro believes in things that are simple and cheap - otherwise out the door it goes.

 In the ten years I've been writing this blog, I've written about Xero around 10 times and interviewed Rod himself 7 years ago.

 I get the impression that Rod doesn't particularly like self - aggrandisement  he just likes to get down and do it but I think you're on to a winner here and it's just going to take the rest of the world some time to click onto the fact that Xero is a product they should try, try it - you'll love Xero. 

 Rod Drury: Earnings out tomorrow. He emailed me at 8.50am, the 10 May 2017.

 Xero 2017 Earnings




c Share Investor 2017


Posted by Share Investor at 3:39 PM 0 comments

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Thursday, April 30, 2015

Share Investor Q & A: Xero CEO Rod Drury


Additional information added on 30.4.15

Reading this over just 5 years latter its surprising to read how much of it is relevant today.

From the concerns from others about the large amounts of money it would cost to run the company, $65 million Rod points out it cost MYOB at the time, now it cost over that figure to run Xero - to the fact that Rod gave up on running the company at a profit in 2011 to concentrate on growing the company.

Of particular interest are the parts on customer churn and cost control.

Darren


Xero Ltd [XRO.NZX] is an online software company that specializes in accounting for small business. It listed almost 2 years ago to raise NZ$15 million to enable the company to grow and raised a further NZ$29 million in 2009. Its results for the full-year to March 31 2010 are a loss of NZ$8.5 million, nearly $2 million more than last year. 


Comment on Interview & Feedback for Rod Drury 

It has thus far reached just over 17000 customers but has yet to manage to push into profit. 

Management say break even could be in 2011. 

The company has products that seem to find favour with the customers it does have and users of Xero are enthusiastic to the point of idolization of their products. 

To those outside the software business or indeed the company, Xero seems like a hard business to understand. What does it do? who runs it, will it ever make money? 

I certainly don't understand the business and growing income and customers without making a profit is foreign to most investors. 

With this in mind I thought it might be a good idea to go right to the horses mouth and fire some questions to Xero founder and CEO Rod Drury. 

Most questions are from me but some have been submitted by Share Investor readers. 


The Q & A 

 

Share Investor - What was the primary reason you decided to found Xero and why list on the NZX when the money raised was only comparatively small and could have been found privately? 

Rod Drury - That’s two big questions. 

We wanted to do Xero because we saw the consumer Internet was taking off with lots of innovation yet small businesses were still locked into pretty poor desktop software. Doing the books in our own businesses was just too hard. As we got into we saw that the consumer Internet, which must be the worlds biggest market is hard to directly monetize – often companies go to an advertising based model. However small businesses will pay a reasonable amount of money if you provide value. So the small business market we believe is the largest monetizable opportunity out there. The problem is it is so fragmented. The Internet allows us to solve that.

We sold AfterMail with 25 staff. It wasn’t enough to do things properly. I didn’t want to do that again. So with Xero the model was 50 people from the start so we could build a global business with a full team. Develop, Test, QA, Customer Care, Marketing, Billing, Sales etc. When the server runs the business you need to build a full business. Say that costs 500k a month. We knew that getting people to change their accounting software would be hard and also the minimum required feature set is large and it would take a while to build all the features the incumbents had. Also, rather than getting paid all up front you get a small monthly fee. So we needed at least 3 years cash which might be around $15m. We could not have raised that in a VC round in NZ. If we had of raised Venture Capital money in the US then we may have had a valuation of 18m with VC’s driving us to an early trade sale. At the time, after AfterMail, TradeMe and 42 Belowwe believed there was an opportunity to fund a business like this properly. In addition to the funding requirements we also knew that for people to entrust us with their financial data and long term viability we had to have credibility and being listed on the NZX.
Xero as a start up as a public company in NZ was the only way to do it. It also provides us with a number of competitive advantages. It is fundamental to our strategy.

SI - How is the company performing compared to your projections when you first started and has growth and or profitability stalled over the current economic slowdown and if so have you seen any indication of recovery ? 

RD -The challenge with doing our type of business is that we can control costs and product but its very hard in the early days to predict what adoption will be like and therefore what the revenue will be. I think the financial crisis may have helped as people put a focus on daily cashflow. The Global Financial Crisis was much worse in the UK than NZ and Australia. Overall though we are delighted with where we are at. Having tripled revenues and reached over 17,000 customers is fantastic. I still remember the chase to get the first 100, then 1000. 

SI - What are you doing to contain costs considering the current economic environment and the focus by other businesses on this important factor? 

RD - Our main cost is people. But we have enough cash that we have been able to build up our team. We have always had a culture of good cost control.

SI - When do you expect Xero to turn a profit, based on figures in your 31 March 2010 update to the market? 

RD - At our AGM last year we predicted monthly break even in Calender 2011. That is still our plan

SI - In terms of all important margins how are they tracking and how do they compare with your competitors? 

RD - As we are still in investment phase we are focusing on executing our plan within our cost budgets, recruiting and growing partners (which builds a scalable way to attract customers), customers, revenue. As the plan progresses over the next few years we will focus more on margin. It hard to determine a direct competitors and margin. The large companies we are targeting on on completely different business models. The last numbers I saw for MYOB was they spend $AU65m on staff per annum so we are a much lower cost operator. 

SI - Will your company pay a dividend from sustainable future profits or reinvest in the business? 

RD - I would certainly like Xero to pay dividends eventually but we are still in an investment phase. It is still early days and the market is taking off. 

SI - Do you think the Xero stock price accurately reflects the value of the company at present or do you think there is alot of expectation built into the share price? 

RD - The stock price is not something we think about too much as we are a low liquidity stock. I think people are seeing we are executing well, communicating openly and they are starting to understand the size of the opportunity. It’s also obvious that a lot of risk has been taken out of the business. We have been able to raise enough cash, our winning of webby awards last year and this year show we can write world class software, the near 1000 accounting partners show traction in the industry as well as customer and revenue growth. 

SI - How big is your shareholding in Xero and how important to you is it that you and other Xero directors have a financial interest in the company as an added incentive to do better?

RD - The founders, directors and staff have a big stake in the company as you can see in our annual report. We are very motivated for Xero to do well. We are living this 24x7 and really enjoying it. (Rod has a holding of just over 24 million shares, the largest Xero shareholder - Share Investor)

SI - Do you own shares in other listed companies or have stakes in private businesses? 

RD - I’ve done a few angel investments and do have other shares in private companies.

SI - What percentage of customer churn do you have and is it above or below sector standard? 

RD - We have low levels of churn. Less than the death rate of businesses (which we hope means that businesses that at on Xero are better!). I think this is because accounting is quite sticky once you commit and by the time we count a customer they have trialled the software and running their business on it. 

SI - How many customers do you expect to have in five years and an estimate of revenue and profit projections for those customers? 

RD - We haven’t put out any projections. Not because we are hiding anything, just that it is really hard to know. We do want to build a significant business though and be one of the key global players in this space. 

SI - The sector in which you operate is very competitive and fast developing, why is what you are doing different and if it is will it keep you ahead of the pack? 

RD - Actually the SaaS accounting software isn’t that competitive. The incumbants haven’t launched a competitive product yet (and we’re 3 years in). Smaller companies we track have fairly thin offerings because it take time to write a full accounting package and they have much smaller teams. As we have strong capital backing we are able to do things properly and take a long term view. It is still very early days in the SaaS accounting space.

SI - What's to stop any current competitor or start-up operating a similar business model to Xero? 

RD - It’s very expensive and is a difficult to do significant SaaS busineses out of cashflow. It is much harder now to raise money. Also it takes a while to get traction which we now have.    
     
SI - You seem to have a small band of loyal and devoted users within the software industry, why do you think that is and do you think that will translate into mainstream customers? 

RD - Actually I think at 17,000 customers and many more users we have much more than a small band or loyal users. We have a wide and diverse fan base. This is very important because accounting software is very much a word of mouth sale.

SI -You seem to have strong brand recognition in New Zealand, how is Xero going in foreign territories? 

RD -  NZ has been a great first market because we were able to leverage our profile and being listed to create a brand. That has allowed us to develop the product with great feedback. The opportunity is leveraging the traction in NZ into the much larger markets we are operating in. The approach to market that has worked in NZ we are now rolling out in the UK and Australia and that is looking good but there’s much more to do. 

Reader Question - Hi Rod, are Asian versions(non-English) of your products in the pipeline? 

RD - Not in the short term, we haven’t conquered the English speaking markets yet, but we have designed the platform for other languages in the future.

SI -Are your customers new to accounting software or do they come from competitors products? 

RD - It’s a real mix. Our initial market research showed that 60% of small businesses used Excel. So we are very often the first accounting system. We are converting a lot from MYOB and Banklink.

SI - As a user of accounting products why would a consumer choose yours over your competitors? 

RD - Begin your journey at Xero.com. Xero is really easy to use and will save you hours of time each month. 

Reader Question - when I looked at this I couldn't believe with all the HYPE it doesn't have inventory management - will this come? 

RD - We are planning to do Stock in the coming year. As I have said Accounting has a broad minimum feature set. Stock often is tied up with Point of Sale or Warehousing and may not suit a web application so we prioritized it after other features. Our research showed it was the least used feature of desktop software. We’re designing Stock now and hope to get it released this coming year. In the meantime we are also looking for other SaaS based Stock systems to link Xero to. 

SI - Your competitors take an interest in copy done on Xero -I know this because they all read what I have to write about your company - with this in mind how have you responded to your competition and have you found the MYOBs, Quickens, Sages and SAPs of this world are taking you seriously as a competitor? 

RD - I haven’t been watching SAP that closely, we don’t see them in the small business space but yes MYOB, Intuit and Sage follow us very closely. We know them well. Our hypothesis was always that it would be tough for them to transfer from a Windows desktop model to SaaS and that has been proved to be correct. I’d expect them to do acquistions over the next few years but it’s hard to see who they would buy. Again if we were a private company we’d be positioning for a take out. As a public company we can capture the opportunity ourselves. 

SI - How are you different from the aforementioned competition in terms of product offering, price and service? 

RD - Check out Xero.com 

SI - Is Xero capable of footing it with the big boys, especially as the company gains some sort of scale in terms of customer base and revenue size? 

RD - Yes. Our team is first class across the board. 

Reader Question - Will the American version of Xero be launched this year? and are there new features on the road-map that will increase ARPU? (like the multicurrency release) 

RD - Yes we have a lot of US customers now and have good feedback for a few things we need to do. The timing is really due to focus. We want to get the UK and Australia countries to a certain point before we open another front. 

SI - How crucial is cracking the United States to your future growth and profitability? 

RD -  We can build a signficicant company in just NZ and Australia, but it would be very exciting to crack the US as well. The US does have a big influence on the rest of the world so we would also get additional benefits globally. 

SI - With the question above in mind, do you see Xero coming back to the market and or its shareholders for more capital to grow your business? 

RD - At this stage we have enough cash to execute our current plan. But at some stage we have to address our lack of liquidity which may provide other reasons to diversify the shareholding. 

Reader Question 

On paying customers: How do Rod and the board of Xero reconcile the following? 

MARKET RELEASE Xero exceeds 10,000 customer milestone 23 July 2009 In advance of the Xero Annual Meeting this afternoon Xero wishes to provide the market with a short update of the Company’s progress. Xero has now exceeded 10,000 paying customers, which amounts to ten-fold growth since March 2008. Crossing this threshold two years after the IPO (read the 2007 Xero Prospectus for detail) is a significant milestone and positions Xero as one of the leading online accounting software providers in the world. 

There were a number of similar releases plus the annual report and audited accounts that clearly states that the customer numbers are "paying customers". An assertion that was made repeatedly in various interviews and blog posts that the customers were paying customers. With this excerpt from the latest announcement on 1 April 2010, that said: 

In the UK, the sales efforts were re-configured to focus on Xero implementation by accountants and to encourage adoption among key individuals within practices. This follows commitments from a number of sizeable UK accounting firms for large up-front orders without actual implementation. The re-focus on implementation is working. Xero has excluded those unimplemented customers from its customer count to more closely align the timing of revenue. 

What does that really mean? Rod clarifies and confirms that the previous numbers were not paying customers on the Xero website. 

RD - We have trialled a number of sales models in each territory as we worked out the best approach for each market. In the UK we had a number of larger firms committing to orders but not following through with implementation. This was a useful lesson as we reconfigured the team to assist with implementation which has proved to be a better approach. The delay in implementation delayed revenue so we now count customers as they implemented which more closely aligns revenue. 
  
SI - Was the intention of yourself and the Xero board to build the company up as a brand with the express purpose of selling, along the lines of say 42 Below? 

RD -  No. Having sold businesses before, this time we want to grow a long term business. The market is really just starting and with accelerators like iPads, Google's up comingChrome operating system we think that things are only just getting exciting. 

SI - What are the biggest commercial threats to your businesses in terms of competition and is your reaction to this competition likely to be aggressive or reactive in nature?

RD -  We’re more scared of a well funded new SaaS competitor like us than the incumbents. Haven’t seen one yet. Our biggest risk is losing customers data so we ensure that we cover that risk with the appropriate risk management strategies. We’re also worried about ensuring that broadband investment takes place which is why we are such advocates. 

SI - What are your biggest challenges as the company expands? 

RD - Getting talented people in New Zealand. For example we probably constrained most by Quality Assurance people. It’s really hard to find great product testers in New Zealand. 

SI - You contribute to a blog on the Xero website and of course your business is web based, how important is the internet to the business to spread the Xero brand and business and will you start to use more traditional forms of media and or advertising as you grow? 

RD - Accounting software is a referral model, so the social media can be used to accelerate that. We continue to test different approaches. Traditional media can be very expensive so we tend to piggyback on our partners spend for that which is why we have built marketing partnerships with banks and telecommunications carriers. It seems to be good for building brand but is very expensive. The social media side is working pretty well for us. 

SI - You are a small company now, how will you keep your strong company culture and customer service when you hopefully get allot bigger?

RD - Xero is fairly distributed as our sales teams operate out of several areas on many time zones so we build culture online. Yammer is a great way for everyone to know what’s going on and feel part of the discussion. Our senior team are all passionate about technology and improving productivity so a lot of what I do is keep reinforcing the vision so we can align with that. Doing quick release cycles reinforces a culture of innovation and execution but it is something we think about a lot. 

SI - Who is your favourite New Zealand business mentors/leader/s and why?

RD - I think Rob Fyfe is classy. He is a leader that gets marketing and has built a great culture of innovation. I like working with Sam Morgan because he is so smart and really challenges me. I like working with Mark Weldon at the NZX because he is also super smart and thinks strategically. Rob Cameron is also someone I like to watch operate.

Reader Question - I have a concern about focus at Xero at the moment. I am concerned about maintaining focus on building the best online accounting system for the SME market. I believe there is a significant opportunity here, but that there is still a lot to do to maintain Xero’s position as a leading SME accounting solution. For example, reporting is still very rudimentary, there is no stock control, the functionality in a number of the modules is quite basic, etc… I have been concerned with the amount of time being spent on building Xero Personal which is a completely different target market. I understand that for many SMEs there is a fine line between personal accounting and their business accounting, but I think that providing a solution to solve this for small business owners doesn’t require all the Xero Personal features. E.g. maybe it just requires an add-on to the Expense Claim module to allow expenses to be pulled out of a personal credit-card statement, etc… I am still a Xero investor as well as customer, and I find a number of the features of the product extremely innovative. My only concern is that they do not divide their focus between two very different markets. (please explain or elaborate on these points if you could - SI comment) 

RD -I’ve already commented on Stock but a big focus of the product right now is accountant features so we become the tool they recommend. We have some big features coming for annual accounts and reporting over the next few months.I was concerned that people would think that we were losing focus on doing Xero Personal. There are some important strategic reasons for doing Personal which I don’t want to go into publicly. Be rest assured that we are very focused on small businesses and say no to a lot of things.

SI - What company or companies do you admire the most(apart from Xero)that you don't have a financial interest in and why?

RD - Atlassian out of Australia have cracked a good business model in the Enterprise space and love their customers. Apple for their strategy. They think long term and put in place building blocks that lead to long term value though I think their emerging culture of secrecy and aggrogance is wrong. I enjoyed Richard Branson's latest book, Business Stripped Bare: Adventures of A Global Entrepreneur, that explained what the Virgin Brand promise is.

Reader Question -Does Xero have any future plans of going into any other fields of cloud computing beyond accounting or personal finance? If so can you elaborate?

RD - Nope. The opportunity is significant enough.

SI - Are there any particular books or periodicals that you have read that you would recommend to Share Investor readers in your business sector or business/investing in general?

RD - My favourite blogs is TechMeme. That gives a good picture of the tech scene. And Whale Oil of course.

SI - In my investing experience I have found the level of business leadership in New Zealand wanting – with a few very notable exceptions - when it comes to making good long-term decisions based on sound business skills, the basic understanding of running a business and accountability when it comes to making mistakes and this is often reflected in businesses hiring from an overseas talent pool. What are your views on how we can get better shareholder representation in the boardroom?

RD - I agree with you the NZ talent pool is very thin. For our part we’re trying to share our experiences so that others will follow in our foot steps and we’ll see other companies and experience develop. In Xero’s case the non executive directors are shareholder representatives.

Reader Question - Does Xero have any intention of implementing stock/inventory control? If so can you give a time frame when this feature will be implemented?

RD - Yes. In this coming year. (Discussed earlier.)

SI - Where do you see yourself and the business you lead over the next five years? 

RD - I would still like to be running Xero, the global leader in small business software and one of the most admired software companies in the world. The profile of Xero and the newPacific Fibre cable has attracted significant inward investment making New Zealand a global player in the Internet economy. Five new internet companies list on the New Zealand sharemarket.


Q  A end. 


*Please note - On Interview Questions: Because of the nature of this Q & A, it means the subject cannot be probed further on each question asked. I would imagine though that Rod would entertain follow-ups in the comments section below.


About Rod Drury - Provided by Xero

A recipient of New Zealand’s most prestigious hi-tech award the Tait Flying Kiwi in 2009, Rod is renowned for entrepreneurial skills in the technology sector. In early 2006 prior to setting up Xero, Rod sold his award-winning email archiving software company, Aftermail, to USA publicly listed company, Quest Software.In 1995 Rod developed one of New Zealand's first Microsoft development companies, Glazier Systems, which was acquired by Advantage Group in 1999 and continues today as Intergen. In 2000, Rod co-founded Boston based Context Connect, which holds several mobile directory patents.

In the late 1980s to early 1990s Rod worked primarily for Ernst & Young, as well as spending several years working on telecommunication billing systems both in New Zealand and the USA.

Throughout his career Rod has maintained a close relationship with Microsoft and was selected as New Zealand's first representative on the prestigious Microsoft Developer Network (MSDN) Regional Director programme, holding the role from 1997 to 2000. Rod achieved Microsoft Most Valuable Professional status for his work in the early days of Active Server Pages.

Rod is a director on the board of the New Zealand Stock Exchange and also sits on the New Zealand Trade & Enterprise Beachhead Advisory Board. Previously he was on the board of TradeMe and SQL Services.

In 2008 Rod was conferred as an Honorary Fellow of the New Zealand Computer Society (HFNZCS) recognising his achievements, ongoing advocacy, and willingness to assist others in the industry

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