After a year-long process of being judged by successful companies and previous winners, Rod Drury recently won the NZX Entrepreneur of the Year Award, which landed him in the competition for the global title – it’s like the entrepreneurial version of the America’s Cup. This man is actively at the helm of Xero, making sure it stays its course with an eye on the future.  The impressive part is that it’s not just his future or his employees futures  – it’s for the future of the whole fleet of the eco-system, including partners and advisors.

Kirsten Barrie:    Last August, you stated in an interview series called “Meet The Gravy”, “The cloud is the biggest technology change that small businesses have ever seen. Over the next few years, all businesses will be connected with orders, invoices, and money flowing between customers and suppliers and bankers. We’re at the point where accounting is now better online and is already connected seamlessly to your bank. Over the next few years, everyone will be connected." How close are we to that vision?

Rod Drury:    I think we’re in the end of the beginning. What we’re doing is taking boring accounting as it’s been done before and putting it into a cloud environment, which means you are getting the normal cloud benefits of no backups, any time, any device, and also the collaboration benefits;  that’s just the inherent advantage of moving accounting into a cloud-type environment.
Now what we’re excited about is the next phase where you get the benefit of being in the network, but utilizing other data sets that we can connect on behalf of all our customers. For example, you log into your iPad and you're seeing this window into your business and all this other stuff is just flying around and doing things for you overnight. Has this supplier gone out of business? Is there a financial risk working with them? The systems are checking your metrics and alerting you to the things that you need to know about. The software is watching your back and proactively telling you when you should be doing actions that will drive opportunities to you.
The first phase is getting the data into the cloud, and we’ve already seen the compelling benefits of that.  The next phase is when the service does other work for you proactively. I think we’re not that far away from that point. We’re investing a lot in this space already.

Kirsten Barrie: How does Banking 2.0* tie into this?

*Banking 2.0 is the idea that banks will open up their APIs and allow business 
applications to connect to banking services.

Rod Drury:    Banking is just one part of it. What we realized is that some of the pain around small business processes is the interface between banking and accounting software. We’ve already seen the benefit of getting those things together. What we’ve been able to do, now that we’re getting to scale and size, is to have the banks make their systems more open so we can do more on behalf of accountants and bookkeepers.
We think accountants and bookkeepers are the key to small business productivity. As we look through that lens, we can see a model of agency into banking systems, where accountants can be granted access to some functions in Internet banking. We’re now getting better electronic connectivity between application software and the banks, and we’re also getting them to think about having accountant and bookkeeper interfaces.
I get asked frequently, “Are you genuine about the role of accountants and bookkeepers?” Well, absolutely. Even in the relationships we have with banks, we are coming up with this concept of agency so that our network of Xero advisors can do even more and be even more productive to make small business better at scale.

Kirsten Barrie:    Is it possible for banks to change and progress towards this vision globally?

Rod Drury:    Yes, it’s already starting. We’re very aware that the situation in New Zealand, which is just a small country, is having all of the banks on our journey. Three or four of the major banks are delivering aspects of Banking 2.0.  Australian banks own them all so that's being picked up there now. We’re having the big conversations with all of the major Australian banks who are flying to New Zealand to see what we’re doing. They’re certainly watching what’s going on, and that it is working well. It’s also already working in the US and we have a number of US banks get on board with the journey.
What we’ve seen over the last two or three years, that the types of staff that banks are hiring like Silicon Valley Bank, for example, have hired a lady, Claire Lee, who's was one of the top Microsoft partner people. She's a very switched-on technology person that's been working with Silicon Valley start-ups for the last few years. So banks are getting this. Now what they’re seeing with us is a case study outside of the US of how things change and the greater intimacy they have with their customers. Our hypothesis is that we can prove that Banking 2.0 is absolutely working outside of the US to accelerate US banking to follow suit. Citi First National is a great example. You’ll also see different banking relationships that we’ll announce over the next year or so in the US.

SMBs are the backbone to every economy, now technology is influencing commerce, not just nationally, but worldwide.   From banks to vendors to sub-contractors, this is very healthy for businesses and individuals who rely on prospering in order to support themselves.

Kirsten Barrie:   Xero has created a great level of global connectivity and interaction.

Rod Drury:  Yes, now through this community, you're actively working with people all over the world. Isn’t that cool?

Kirsten Barrie:    Yeah. I'm on Skype all the time with people all over the world now.

Rod Drury:   I had a really interesting discussion with Amy Vetter, our Global Vice President of Education, where she said to me that she has realized there's a much bigger world outside of the US and she is really enjoying that part of the Xero journey. It was fascinating to me. I really love that.

I was able to follow up with Amy on this topic where she also generously shared the following new perspective with me:

It’s broadened my understanding of accountants and SMB’s needs - even with geographical differences, we all face many of the same business issues. It’s a true global economy and I’ve grown personally learning about the different cultures and expanding what I knew from the US market into other countries - just loving the experience of being at Xero.
— Amy Vetter

I think we are building these global businesses now, and building a community of people that we really enjoy hanging out and spending time with, with no borders. To me, this is the fun part of the job, getting to know people like you and people all over the world. It’s just really exciting.

Kirsten Barrie:    I agree. Speaking of connectivity, how is the internet changing small business?

Rod Drury:    We love seeing service businesses starting to export. This is really important for smaller countries. The smaller countries, especially a country like New Zealand, has a very small market and most of the exporting that is done is manufactured goods. Most of the smaller economies are service-based economies.
 With technology like Skype, Fuze and GoToMeeting you can now have service businesses that export as well. Of course, the tools like Xero support all of that with multi-currency, which has resulted in an interesting attitude change.
When I’m talking to accounting firms in New Zealand or talking to the accounting partners, I’m asking, “Do you guys have export goals? Are you thinking about 30% of your fees coming from offshore over the next two years?” That floors them and they looking at me like, “What are you, some sort of mad man?” but then after about five or ten minutes, they start to realize the difference between labor rates between New Zealand and Australia is about 40%, so why can’t they use technology to export services.  We’ve got lots of Australian partners that provide services out to the UK and we've had some US partners that are helping some of the add-on providers in Australia and New Zealand get into the US.
We are already seeing this really interesting globalization and I think that’s super exciting. We are a "global from day one" business, and we’re really enjoying it - why can’t our partners and customers?

Kirsten Barrie:   True. What’s the advantage of the NZBN (New Zealand Business Number)?  Do you see this being a global tool?

Rod Drury:    New Zealand we didn’t have a standard electronic business ID. Australia has the Australian Business Number. What we’re trying to do is to use New Zealand as an example of other countries doing it well.  In the US, there's a version of it, the Dun & Bradstreet number, which is just sort of the de facto one, but it’s not used as an electronic key though. We’re investigating whether we can extend that to have that. What you need is infrastructure and web services for discovery for testing and checking that it’s a real number.

Kirsten Barrie:    That ties into the expanding vision of connectivity.

Rod Drury:    That's a foundational component. We also spend quite a bit of time working on these big things. Again, if we can demonstrate it working in a few countries, then we can have a really good discussion with the small business leadership in the US around this as well. Of course it's going to take a long time. In the US though, there are large pools of business data around so we’ll likely see a private sector solution to that.
Also, we’re really interested in Electronic Data Interchange (EDI). We’ve got a very large market in smaller markets like New Zealand where Enterprise businesseses are coming in wanting to connect to our large base of small businesses. This is where small business accounting software transforms. Large businesses connecting in to automate their supply chains.
We’re running through this evolution right now with the top ten large New Zealand businesses. They are connecting their customer base through to us so that they can send around purchase orders and invoices.
Again, it's why its interesting doing this in a number of different countries because the smaller countries get to scale faster and then you can use that to really drive things forward. Whereas that’s years away in the US because it will take that long for us and for QBO to get any sort of meaningful market share where you start creating these network effects.

(cont. on Part 2)