New Zealand-based Xero Makes Major Play for the Cloud

It's nearly 9,000 miles from New York City to Wellington, New Zealand, but that didn't stop AWEB Managing Editor Richard Koreto from direct dialing the offices of Xero from his Android phone. And as he was connecting, he didn't even stop to think why or how a global software company was thriving in a country with fewer than 5 million people: Geography is rapidly becoming irrelevant, whether it's conducting an interview or growing a company. And that's both the point of Xero's model and the reason for its success.

Someday, we will tell our children about how software was "downloaded," or even transferred to laptops, from something called a "CD." This was before all software, and all the data the programs managed, were stored offsite, in the "cloud." And in that future, we'll be able to list companies like Xero, which provides accounting solutions, as one of the entities that paved the way.

Xero, based in Wellington, New Zealand, is not the only company in the cloud, or even the first. What helps set it apart is its origins as a cloud-based software company, rather than as one that retrofitted a traditional model to the cloud later on. Self-described "serial entrepreneur" Rod Drury founded a company in 2006 to meet the needs of small businesses. (He called it "Xero," he said, because it's a short memorable name and the domain was available.) AccountingWEB caught up with Drury in his Wellington offices in mid-May to hear more about his company, how the accounting world is changing, and what he sees for the future.

"We love the small business economy," said Drury, to start. "The small businesses make a big difference," and yet he found them poorly served by other software companies. There was a niche for a company that could get rid of much of what Drury called the "drudgery" of accounting. Indeed, Drury emphasized that the process was more important than the product—it was all about connections. "We want to exploit the cloud's ability to connect small businesses to each other and to big businesses."

The cloud is making all this possible, he said. With companies like Xero, the very nature of financial relationship between different companies changes. It becomes easier to access the cloud-based data to discuss business performance among companies and customers and suppliers. "Suddenly, the small business owner sees a new ability to work with its customers. Not only is the cost of compliance reduced, but we see the accounting department move from mere compliance to advice," said Drury. "It's like when Henry Ford automated car manufacturing." The accountants are now free for new tasks.

Drury gave some specific examples. A small business, with its financials now in the cloud, can create and continually connect with an electronic supply chain. Sales staff, on the road, can easily check numbers from their tables. Processes like invoices and reconciliation are now automatic. Xero's services can work in coordination with other companies' applications, so tax filing, management reports and e-commerce all work together. In fact, Drury sees a massive investment in business software in the coming year, and this can only help companies. "Once your accounting is under control, everything comes together," said Drury.

Overall, the processes will work much more smoothly, continued Drury. Everyone will be able to gain access to data they need much more simply. "Everyone is developing a cloud strategy. We're seeing an opening of the accounting industry so data can flow."

A brief look at some of Xero's recent achievements shows that other companies are getting it too, including some big ones. In March, Xero announced a strategic alliance in the United Kingdom with KPMG, to provide select online accounting and tax services to small and medium-sized enterprises using the cloud. Meanwhile, in the United States, Xero formed a strategic alliance with H&R Block, as part of Block's Small Business Program suite of services. Block will promote Xero as the sole recommended small business online accounting solution.

Major publications are taking note: Forbes put Xero on the #1 spot of the world's "Most Innovative Growth Companies," noting it had a 5-year average sales growth of 210.2 percent.

"We see it as a real endorsement that these big names want to partner with us. It's a big deal that they're working with the kinds companies that didn't even exist until recently. But that's the way it goes—the big companies working with the entrepreneurial companies." And will others be following suit? Absolutely. "We see the Big Four actively moving into the cloud space. And they're doing so because they're getting pressure from the smaller firms."

Throughout the interview, Drury emphasized that accounting was just the beginning. "It's about more than that—it's about ending the need for desktop software entirely." Just think if everything you have in Excel and Word is all online—all the information accessible. This could happen in the next two to five years, said Drury. As a result, banks will have all a company's information at its fingertips, when applying for a line of credit, for example. The accountants will become even more important, working with the banks, as the data transfer process becomes streamlined.

It will be a new world for companies and their customers, suppliers, banks, and insurers. And most of all, "it will be a new world for accountants," said Drury.

 

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