Xero CEO Rod Drury banks company's future on investments

While Xero is currently operating in the red, Xero co-founder and CEO Rod Drury is not too concerned because the company has plenty of capital as a buffer.

Even though Xero reported a NZ$24.5 million half-year net loss last November, the cloud accounting company is in no rush to breaking even anytime soon, because it's really not big issue, according to Rod Drury, Xero co-founder and CEO.

Speaking to ZDNet during Xerocon 2015, Drury said given that the company is sitting on nearly a quarter of a billion dollars of capital funding, he reckons Xero has plenty of time to focus on making new investments.

Xero secured a large chunk of its capital in February from Silicon Valley-based Accel Partners that agreed to invest NZ$132.9 million. Matrix Capital Management, Xero's largest investor, also agreed to put in an additional NZ$14.3 million.

"I think we've been a really well managed public company from day one. Our board said a couple of years ago: 'Our market is going to get a bit shaky in the future, so make sure you get a lot of gas in the tank'. We've now got a quarter of a billion to invest. Ironically, even though the market is crazy, it just means we can keep executing our strategy," he said.

Rod Drury, Xero co-founder and CEO (Image: Supplied)

Drury said a large investment focus is to continue to grow Xero's presence in the United Kingdom and the United States.

In the UK, the firm struck an alliance with KPMG UK last year that gave it the advantage to tap into the local customer base there. Drury said since then, while the UK is 18 months behind the Australian and New Zealand market, business is starting to make some real inroads.

"[It's] really starting to grow and we're starting to see the bank feeds really come in. Quite a lot of that is because as some of the UK senior bankers have come from Australia -- like Barclays and The Royal Bank of Scotland -- and Australia is seen as the leader in cloud technology, that is being exported to the UK," he said.

In the US, while it was a bit of a rocky start for the company, which Drury brushed off as being not "that bad", Xero now has more 35,000 customers in the market. Drury believes this number will now grow even more with its latest partnership with US-based online business management software MindBody, which has 45,000 customers.

Other partnerships the company has secured with global brands include Apple, Google, Microsoft, and Dropbox.

"A lot of people ask how are you going to win the US, and it will be by pigging-back off these large partnerships," he said.

Drury also restated that there are plans for Xero to publicly list in the US, but assured it will not be happening any time before June 2016.

"I think we've got to see what the market conditions are like. You wouldn't list right now; it's a bit crazy but we think the software as a service business is so strong that growth will come back," he said. "Right now everyone is running from growth, but that's fine because we can just keep executing. US investors will want to see us get traction, so we just have to keep executing our strategy.

"When they all line up then we'll go."

Drury said that there's really no rush.

"We've got plenty of money. It means the market can do whatever, it's actually better that it's tough because everyone is struggling to follow on with their funding so we're in a really strong position."

When it comes to talking about competition -- or as Drury refers to them as incumbents -- he is confident Xero has already won the game. Other prominent players in the market include MYOB, Intuit, and Sage.

"We don't see a lot of competition. For the last three to four years, we've been really competitive with incumbents, but they haven't really fired any shots, other than to price dump and that doesn't work, and to out-market us and that doesn't work.," he said.

"It's really just about building a great product and that works."

Last September, Xero announced that it would indefinitely extend its free MYOB-to-Xero conversion, Jet Convert, to allow MYOB customers to easily shift their accounting ledger onto Xero's platform. Xero ANZ managing director Chris Ridd, said to date, 30 percent of customers that have signed up to Xero are from MYOB.

"We will shortly clock over 10,000 paid conversions," he said on Thursday.

Xero launched a similar conversion tool directed at BankLink customers in May, and Ridd said Xero has migrated 20,000 BankLink clients in Australia and New Zealand to its platform.

Drury reckons the reason why Xero is trumping its competitors is because it's transparent about customer numbers -- an important benchmark, he says, for anyone in the accounting market.

"We made the decision to be really transparent about [our numbers], and it has been fascinating that the incumbents, including MYOB, Sage, and Intuit deliberately hide their numbers," he said.

"You need to see what customers, what country, what product, and then link that to sales and so you can see what's going on."

Today Xero reported that it now has 400,000 Australia and New Zealand customers, and 540,000 subscribers globally. But Drury has his sight set for the one million mark, and eventually breaking even.

"I would still love to break even, but we don't want to sacrifice long term growth for that. We've got so much capital, and we get to control our costs," he said.

"What we don't know is what our revenue will do. We think in the next two years we'll see a real growth spurt, but you can still feel momentum even after nine years."

Disclosure: Aimee Chanthadavong travelled to Xerocon 2015 with Xero.


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