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Chris Cardell

Interview with Rod Drury (Xero)

Xero is an online accounting platform for small businesses.

I interviewed Rod Drury, Xero founder to find out more. This interview is the hundred and fifty seventh in a series of DW startup interviews. Big thank you to Rod!

How would you describe Xero in under 50 words?

Online accounting for small business. We connect small business owners with their bank, accountants, bookkeepers and other advisors with beautifully designed accounting software.

How did you meet co-founder Hamish Edwards and what made you create Xero?

Hamish was my accountant. Working with him I could see the disconnected process of sending files around was broken and desktop software looked 15 years old. Together we decided we could make life much easier and fun for small business owners.

How long did it take to put together the initial version?

As we had capital we were able to do pure R&D for the first 4 months, building the foundations for a scalable global financial platform. After we had the foundations right we started building the accounting features. First customers came on a month later.

6 years on we’re still building but have 135,000 customers and 200,000 users.

You’re based in New Zealand and considering Xero was only founded in 2006, how have you managed to expand into over 100 countries so quickly? Did you expect the growth you’ve received?

Yes, we thought that if we did it right we’d be targeting millions of customers. We did a New Zealand version, then UK, then Australia, then global (with configurable tax) then USA. It’s all the same code base so we can be nimble.

We also focussed on Xero as a platform with an open API and have over 200 applications already that connect to our engine.

Being gracious with partners has seen a thriving ecosystem develop and that is helping build network effects.

You had only 100 paying customers when you went into IPO, which seems quite bullish, but it definitely paid off! I’m curious about the process you went through to convince yourself and others that the business plan was scaleable. When did you have the epiphany? Did you have any doubts?

In our home country the Venture Capital market hadn’t developed as it has in the USA so we had to think of how else to raise the substantial funding required to have 50 people from day 1. As we had been successful with a number of other ventures we could bank our reputations and sell the story.

It was logical, but if it didn’t work we’d probably had had to move to Mexico. Thankfully the strategy has been sound and it places us in a strong position of being listed but with aligned and supportive owners.

So listing was more necessity than an option.

You’ve received over NZ$145 million in funding and have market capitalisation in excess of $700 million. Now with over 200,000 users, what do you attribute your success with Xero to?

Doing the foundations right, building an excellent team, focussing on the customer and building the right global culture. Building a big horizontal app like accounting is a massive build so we needed to be patient and let the strategies play out and stick to the plan.

It still feels like very early days. We’re close to ticking the boxes on the horizontal features and now having fun changing the game with real innovation that delights our base.

What was technically the most challenging part of developing Xero?

Hiring and scaling. We’ve doubled staff to over 350 in the last year. We’ve managed to do that while keeping our quality and culture which is a lot of work. As we’ve grown making the decisions around features and scale is hard. I want features of course but we also need to balance refactoring and performance. So prioritisation is a big challenge.

What hurdles have you faced in creating Xero? How have you overcome these?

Doing a high growth, loss making company on the public markets is different. In our local market investors aren’t used to that so we took a lot of flack early on, but that is subsiding as we keep doubling revenue.

It will be nice to be at break even though.

How are you reaching your target audience? How have you convinced accountants to put their clients on to Xero?

The accountants channel is key for winning the accounting market. We run an enterprise style selling model to develop this channel, coupled with a direct model to end users. We focus a lot of customer acquisition costs.

The channel starts expensive then gets very efficient. We are disrupting the market by building the accountant-side side tools into the platform and avoiding the double dipping of the incumbents. It’s compelling.

How have you differentiated yourself from competitors?

Beautiful design and focus on the customer. It’s great to have long term incumbents to push against.

It’s not the big that eat the small but the fast that eat the slow.

What is your primary focus in terms of new developments at the moment?

Finishing the horizontal feature set, completing the accountant side, jaw dropping innovation.

Where do you see Xero in 5 years time?

A globally admired company that small businesses around the world love and trust.

What advice would you offer to any soon to be startup founders out there?

Treat entrepreneurship as a series of baby steps. With each business you gain more experience, contacts and capital.

Don’t rule out working for companies of scale that are doing cool things. You’ll learn a lot.

Can you convince the reader to start using Xero in under 50 words?

Jump onto and have a try. Building a business is fun and we’ve made doing the books easy and satisfying.

Finished reading? Check out Xero!

This entry was posted on Tuesday, March 5th, 2013 at 4:10 pm GMT. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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