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App Watch on Changes at Xero

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Nov 3rd 2016
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Change is most certainly in the air. The Chicago Cubs are now world champions for the first time in over a century and this week’s App Watch is focusing on just one company in order to help shed some light on some seemingly unprecedented news from Xero.

As you know, a big part of what we do here at App Watch headquarters is add insight to accounting product-related news in the hope that it helps you stay a bit more enlightened in your own decision-making and those that you help make with your clients. Followers of this column also know that while we at AccountingWEB may work with these companies in some informational and promotional capacity, this particular column is not a part of any paid or purposefully promotional arrangement.

News: That aside, you may have caught wind of some news from Xero this week that their Americas President Russ Fujioka and global chief marketing officer Andy Lark will be departing. This news hit just before the company reported its H1 earnings results, and Xero Founder and CEO Rod Drury addressed the move directly, both to the financial press and myself.

First, the numbers. According to stats from this week’s H1 earnings report, as of Sept. 30, 2016, Xero had 862,000 subscribers attributed to strong growth in all of its key markets.

The Australia and New Zealand segment grew 39 percent to 592,000 subscribers, in the UK subscribers grew 61 percent to 164,000, and in North America the company reported a 64 percent rise in subscribers to 77,000. In the 12 months to September 2016, Xero added 269,000 subscribers, compared to 242,000 subscribers in the 12 months to March 2016.

North America sales were Xero’s fastest-growing revenue segment, up 59.5 percent to $NZ11.95 million ($US8.75 million). However, they only accounted for 9 percent of the firm’s revenue in the half.

As to the announced management changes, according to a report in the Australian Financial Review, Drury said there were no senior management problems at the company despite a range of senior departures in the past year, including the president of its Americas division, Russ Fujioka, and chief marketing officer Andy Lark.

“We get great people in for the right period of time [and] Andy and Russ were successful,” Drury said in the report. “Andy helped me build a global business, put great people in country and now we’re flattening that structure as planned.”

Regarding the move, Drury told AccountingWEB: “You can see from our strong performance that Russ and Andy had successfully helped me to lift our business to be able to implement the distributed and flatter structure we’ve designed to support our growing scale. As a new entrant, you need to progress through a number of stages before you have the right to attract key industry talent. As we are gaining traction in the US, we need to think about what we look like with 500 or a 1,000 people there. Building scale in Denver makes a lot of sense.”

Xero has also appointed Keri Gohman, an executive from the US financial services industry, to lead Xero Americas through the next phase of growth. Formerly an executive vice president and general manager of Capital One Small Business, Banking division, Gohman will be based out of Xero’s Denver office. Russ Fujioka will stay on through the end of this year, while Lark has departed to pursue other opportunities.

Xero PR also noted that the function of the chief marketing and revenue officer will be replaced by a chief marketing officer who will focus on global brand and marketing communications. Xero has launched a market search for a CMO and has already spoken with several candidates. The company also retains its CMO for the Americas, Paul Miller, who came on earlier this year.

On the selection of Gohman, Drury said, “Keri is one the most impressive financial technology executives I’ve met in the US. We spent a lot of time getting to know each other and I could not be more excited to have her lead our US business and be a key global executive.”

Views: OK, I know that was a lot, especially for one company, but I felt that as this is a company that is gaining some notice here in the US and North America in general within the accounting and small business space, we should spend a bit of time sorting out news of this nature (plus, some of you have been emailing and messaging me about it). So, here’s my perspective on all of the above.

Overall, really not a ton to say here, but as far as the move itself, it is somewhat understandable. Xero has been here in the States for all of five years. In that time, it has had a couple of people head up the operation. First with Jamie Sutherland, who came from Sage/Simply Accounting. Essentially he performed a lot of the business development the company first needed when it got here, and as they grew, they needed more of a fresh face, someone seasoned who could oversee the big picture: Enter Russ Fujioka, who oversaw all of North America.

His connection to multibillion-dollar Silicon Valley success stories was the right face at the right time and he did help get this division of the company where it is now. In my view, he was never long for the company. Great guy, visionary, experienced, but not a long-term play for the North American division.

I thought he would see them through to IPO and I think that was initially the plan, but now that has apparently been pushed off from last year to this year to, well, who knows, and given the other expansion plans here, Drury wanted to put a new face to it all.

He’s a big thinker and can make bold moves when he needs to, and clearly this was one. Also, as to the company’s direction in North America, I think they finally have one. The renewed focus here on accountants, not just selling them product but partnership and necessary education on cloud, on practice management issues, on client growth should serve them well. Their nearest competitor Intuit figured this out a few years back with its renewed focus on cloud and the accountant/bookkeeper set, and it appears to be working for them.

Final thoughts: I’d say that – and perhaps I’m guilty of it by even giving it this much attention – from a product perspective it’s simply not a QBO vs. Xero war. Far from it. Accountants and bookkeepers will always strive to serve their clients the best way they know how, and for a growing number of you, both of these products work best in their own way for your clients.

I just haven’t seen a whole lot of dumping one for the other (except when it comes to desktop for cloud), but rather knowing which one works best with which clients. I think it will also serve Xero well not to make Intuit, or QuickBooks, the punching bag but focus on improving their product and their message to accountants and bookkeepers. This has already started to happen, and I think their numbers reflect that.

OK, that’s far enough from me. What do you think? All of this probably is not as significant as what will happen next week in our government but we welcome your feedback.

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