Kirsten Barrie: Let’s talk about some specific Xero functions: what is the progress on developing quotes and other horizontal accounting functions?
Rod Drury: Currently we do have a solution for quotes, we have some really great partners that handle that aspect well.
We are about 800 staff now, we have doubled our team and almost tripled our development capability. We’ve gone through the jump of the founding centralized team to a fully distributed development team. There's quite a lot of trauma of going through that jump. You go from having a very few number of product managers to now having a team of 10+ product managers running distributed teams. It may have appeared that we slowed down a little bit for the last year as we went through that transition, but we’ve gotten through it now so you’ll see our cadence increase with a whole lot of new innovation going across the board.
The problem with horizontal accounting software is that there is a massive amount to do. Not only have we been building the small business side of accounting, we also knew that in parallel we had to build the accountant side of accounting, because in the cloud they have to come together. Why would an accountant recommend small business accounting software that doesn’t have the accountants side of the equation? We haven't just done the small business side; we have this massive investment to do on all of the accountant tools like ‘My Green Xero’.
We know that service-based businesses, very simple businesses, can use Xero just fine now. Then we also have the ecosystem partners whom are filling in any of the gaps. Now we’ve got the team in place, we’ve got through some of the things that we had to do, we’re now going through and completing everything else.
The quotes function is a good example - we’re working on that at the moment and it’s looking really good. We also want to get inventory done this year.
I think once we’ve done those and we tick the boxes of doing everything else that a desktop accounting software does, then our view is that we can come more forward in the business processes. Accounting software traditionally just records things, but as you finish that, then you say how do you come back to have more forward functionality in the business processes to add value to small businesses.
The bit before invoicing a transaction is when you’ve got a job sitting on the fly. We want to get into nice simple jobbing so that while you’re actually working on a job, you have really good visibility of exactly where you’re at against the budget and can communicate easily with your customer - because if you get that interaction right, you’ll absolutely make some more money.
Before doing a job, there's the quote, and when you’re doing the quote, it’s not just about winning the business, it’s about getting the recording of the job ready so you’re recording the right things so you can manage it.
Before a quote is actually getting more leads in sales, and so we’ve shown some of that stuff with Smart Lists, which was our very first part of that.
And finally, before that is CRM and how can we just sort of drive more and more sales leads.
Kirsten Barrie: Is the platform that Xero is built on (to borrow from the lean business canvas model philosophy) its “unfair advantage”?
Rod Drury: Yes. All the companies that have been category winners in the history of cloud computing are the ones that have started being pure cloud. It’s so much easier than trying to move a legacy product across. Not only were we able to start with a clean environment, we were able to start with real capital, so we didn’t just clean and that was it - we actually did a lot of R&D. We started off with a beautiful relational database model, which not only models the accounting functionality but the relationship between accountants and bookkeepers, which is why the ‘My Green Xero’ works so well. We modeled that right at the beginning. Then we have a beautiful general ledger, which has currency modeled right into it. It has cash and accrual-based accounting, and debits always equaling credits. It is the worlds most advanced accounting engine.
On top of that, we have things like a replay framework so if we get anything wrong, we can unpack the transaction, put a patch across, replay them. It’s a very resilient system.
Then on top of that, we’re building the beautiful workflows, which are the accounting functionality, but we’re not building deep into the stack. We’re building them on top of our general ledger. That creates sustainable, competitive advantage. We had to build a team from 30 or 40 people up to several hundred people, which takes time, and we had to build the accountant side at the same time, so there's just a massive amount to do. We’ve invested now a few hundred million and over the next few years we will just roll out more and more features.
Kirsten Barrie: Xero must have to map out what each country’s development strategy is in a very thoughtful way.
Rod Drury: There are people in the community saying, "You guys are terrible because you haven’t done this or you haven’t done that." We want to do everything, but because for a whole lot of reasons they don’t see we just haven’t gotten there yet because we’re working on some other stuff that other angry people are working on, and also for a whole lot of timing reasons. There's so much to do and we are getting there. What happens is we’ll do quotes and then we’ll be bad for not doing the next thing, right?
I think people should know that we’ve demonstrated that we’re pretty smart and know what we’re doing. We try to do the best thing for the community. We just need to get there and sometimes it takes time. We’ve now got an awesome, really broad team in place that’s humming, and now you’ll see us sail through the rest of the features soon.
Kirsten Barrie: Do the feature requests push what’s being developed, or is it a balance of a few things?
Rod Drury: Yeah, it’s totally a balance. It’s what's the competition is doing (which really isn’t too much), it’s what the people are saying inside the community, and then it’s our strategy. We’re balancing all of those things. You don’t want to put everything on what customers ask for because no one asks for bank reconciliation, no one asked for files, and no one asks for Smart Lists, but you show them and they’re like, “that’s fantastic!" You keep moving the game. Our product managers are in the forums everyday saying, "What are we doing?" We have a sniper team that is doing the little stuff, the little annoying things. There were 14 features in our last weekly release; we’re nudging those forward as well, so it’s a total balance.
At the end of the day, you look at the number of customers, well over 330,000 customers now, so we’re not getting it wrong - but we want to go faster and have everyone happy. I think over the next six months, we’ll tick off a lot of those real big features that are still outstanding.
Kirsten Barrie: Do you think completing those parts will make a big difference in the US?
Rod Drury: In our first 18 months of getting busy in the US, we nailed some good partnerships, raised money, got some good people on the team. We’ve now hired Peter as a US CEO, who’s now hiring his team. While we’re doing that, we’re finishing off the US product. Australia and the UK are cranking. Now that we’re putting our attention on the US, I think we’re really excited about where we’ll be at he end of the year. Even now the software is ‘not bad’.
We’re the leading accounting provider in New Zealand. We’re the leading online accounting provider in Australia. And we’re the leading online accounting provider in the US. We’ve done what Intuit hasn’t done in 20-odd years. We’re winning in the UK, we’ve won in Australia and we’ve won New Zealand. With that underpinning our business, that's going to ensure we keep delivering strong growth for the next X numbers of years, which allows us to now really focus on the big fight, which is the US.
75% of the US businesses are not on QuickBooks, even though everyone knows who they are.
The US market is dying for a bit of competition and that’s making Intuit even better. Everybody is winning by having a strong challenger coming into the market. By the way, we don’t mind the Intuit guys. We’d be happy to work with them to make our software work well together.
The industry is now to seeing a massive amount of investment going into it - it’s going to be a great competition. The US small businesses and the US accounting community is an absolute winner when there's good competition.
Kirsten Barrie: What was your strategic plan globally, and why English-speaking countries only so far?
Rod Drury: It’s the majority of where people pay money for these things right now. As a smaller company, you got to be focused. We’re operating really well across 4 geographies and once we get the US team sorted and that’s all set, then we’ll add some other countries. Canada is obviously pretty interesting, but there’s a few things around tax and French - there'd be a small amount of work that we would need to do.
We want to get each country set up because there's no point being everywhere and not doing well in each market, but we want each country to wash its face. I think US customers would be upset if we were spread too thin, adding another country before we fully deliver on the promise for the US. Peter is building his team, and over the next year or two, we’ll get the product to where we want it to get. The signs are really good. We’re building that trust, people are seeing that we deliver, and we do what we say. Next year, it’s game on.
Kirsten Barrie: Do you have any goals to establish a presence in non-English speaking countries?
Rod Drury: Yeah, but sometime down the track. It’s relatively straightforward to do, its just bandwidth. Remember we are at 800 people, Sage is 13,000, Intuit's 9,000 people - we’re still lean and mean.
Kirsten Barrie: Peter Thiel, one of the initial and repeated investors, is known for asking the question, “What is something you believe that nearly no one agrees with you on?” How would you answer that?
Rod Drury: People said that there's a lot of bits of accounting software out there that's being done to death and I said, "No, no one has really nailed it."
I think there was a lot of skepticism when we started out building yet another bit of accounting software, but for a whole lot of reasons it just didn’t match the vision of where I thought we could take it. I think what people are just really now understanding is that this is not about accounting software.
We think online accounting is a temporary product category. Online accounting is the killer app for small business computing. We've always had a much broader view than just doing the accounting, but we’ve had to be really disciplined about building a killer accounting system first. Then over the next year or two, you’ll see us starting to do the things that we really want to do.
For me being an entrepreneur, having the patience to wait eight years to have the right to do the cool stuff is excruciating. Soon you’ll see a lot of stuff that we’ve been doing behind the scenes. We're just going to move the product category over in the next few years and we're really excited about that.
Kirsten Barrie: Very exciting. You’ve accomplished a lot and are set out to accomplish even more – how are you getting all this done? Clones?
Rod Drury: I’m pretty pragmatic. Because we did an IPO really early on, I’ve always been working on the business, not in the business. We've always had really good senior operating managers driving the company. Our view is because we’ve had the capital to do this right, we’ve mostly hired the senior people first and then had them build their teams. The operating part of the business is really good. I don’t do a lot of day-to-day management, which allows me to really think about product strategy, vision, and painting the picture. We have this great operating team that actually runs the business.
I skip a lot of our core meetings just because I’m on an airplane and traveling. The real secret is having a great operating team behind the scenes, allowing me to get out there and lead from the front. I’m very grateful for that obviously.
I’m also just really diary-operated. My diary is open for all of our team, and I’m looking at it saying, "Okay, I need to get to the US, when do I think I’d do that?" I lock that week and then just drive meetings to it.
I’ve quite deliberately put really great people in each country. With Peter in the US, we now got four great country leaders. We just put a New Zealand country leader in as well, so it’s much more sustainable. I think that’s also been part of the secret - having strong leaders. I always say to people, if I tried to get a job at Xero now, I probably wouldn’t even get in because the senior team is so strong.
Kirsten Barrie: What keeps you grounded?
Rod Drury: I think having three children and trying to be a good parent is very grounding. I work from home and commute basically Tuesdays and Wednesdays to Wellington, then a day to Auckland, and maybe every four or five weeks, if not more, overseas somewhere. We live in a nice, more relaxed community that’s close to the beach. For me, I want to go stand up paddle boarding, ride my bike, swim and exercise. I think all of that stuff keeps it pretty real.
Also, we're kind of inside a bubble. As a public company, being in the public eye, there's so much urgency that you have your feet in the fire the whole time. We’re really busy, but trying to do it in a very sustainable, balanced way.
(cont. on Part 3)