Moving the goal posts
Another exciting day in Xeroland as we start to move the goal posts with our latest release.
The last major change in the desktop accounting space was the move from DOS to Windows that happened in the late 90’s, early 00’s - compounded by Y2K where the IT industry did a great job convincing everyone that planes might fall out the Sky (he wrote nervously from Queenstown airport).
Unlike the last technology shift, moving online changes everything.
Over the past year we’ve been rapidly completing the broad functionality expected in a general accounting system. Sure it’s pretty but there was just a huge number of things we needed to do to be a substitute accounting system. We are getting close. So now we can start to change the rules and change people expectations of what small business accounting systems do.
This is important for SaaS. It’s not just about changing the delivery and pricing model, it’s about how being online changes everything. Shifting the goal posts.
In the old world, most desktop accounting software is often locked away in the back office, retrospective, period based and can require triple handling of data. It is only used by a small number of people in the business (thank goodness). The first step of moving online was about matching the features of the existing providers, that have been around for many years, while adding the initial online benefits of being collaborative and near real time.
The next logical step is breaking out of the back office. Linking the accounting system to normal business processes and bringing aspects of the accounting system to frontline staff.
So todays release was as important for us as we added an Employee role to our security model. A relatively small and logical addition to Xero but very significant to our strategy.
It’s very exciting to get to a point where rather than catching up, we can lead. Also after a year the company matures significantly and processes evolve. I’m blown away but how much stuff our team are getting through in each release.
Now the fun really begins.
We’re a Microsoft Gold partner and really appreciate our relationship with MS. Lots of friends there.
Only a few years ago the Microsoft powerhouse was unstoppable. You couldn’t even imagine Microsoft could have a competitor and there were calls to break MS up.
Then two fronts happened. The Internet, which challenged the lock in of the desktop model, and Apple came back.
It’s a fascinating tech story that thousands of people commentate on. But this article was a bit of a wake up call as to where MS is at.
Can Hotshot Ad Guy Alex Bogusky Make Microsoft Cool?
Firstly this
Over the past couple of years, Microsoft’s already problematic reputation in some circles — as the soulless, power-hungry purveyor of lackluster products — has suffered a series of self-inflicted wounds. It spent two years and $500 million on the media blitz around the long-delayed Windows Vista launch, only to see the January 2007 “Wow” campaign, which likened Microsoft’s new operating system to Woodstock and the fall of the Berlin Wall, derided as arrogant and creatively void. Vista itself sold poorly, leading to price cuts of up to 40%. Worst of all, the flop bred a new generation of Microsoft haters. “Microsoft has really lost control of its image,” says Rob Enderle, an influential advisory analyst for tech companies including Dell, HP, and Microsoft. And with its two most formidable competitors — Apple and Google — boasting their own consumer cults, that’s the last thing Microsoft can afford to do.
I’m sure Microsoft strives to do better but the fact is as companies grow it is just hard to be nimble and the technology market allows new entrants to come in unencumbered and change the rules. In that climate long term brand demise is entirely predictable. But at the same time a cheeky challenger, smaller with a lot more focus, but big enough to make an impact has been accelerating that brand erosion.
Nothing is doing more to carve away at Microsoft’s reputation — and contribute to its loss of market share — than the assault launched by Apple two years ago in the form of the “Mac vs. PC” spots featuring The Daily Show satirist John Hodgman. The ads became immediate pop-culture fixtures, spawning more than 1,000 video spoofs on YouTube and taking home last year’s Grand Effie, the ad industry’s highest honor for effectiveness. “Nobody messes with anyone in the tech industry the way Apple has messed with Microsoft,” says Enderle. “It’s the first time I’ve ever seen a major national campaign that disparages a competitor, and the competitor just sits back and takes it. If somebody tried to do that to Oracle, you wouldn’t be able to find the body.”
It is so interesting to watch this battle on such a big and public scale.
Microsoft is reinventing itself. SharePoint is growing like a wildfire in the enterprise and the cash keeps rolling in.
Far from being complacent Microsoft has lots of smart people and lots of money. They know they’ve missed the market in a number of public areas and that has removed any corporate arrogance they might have been accused of a few years ago.
They will have learned a lot of the past few years, and especially over the last few months on the so far failed Microhoo bid and the unrestrained reaction from the community.
I expect Microsoft to reinvent themselves over the next few years. Now there is real competition and that leads to innovation. That is great for the industry.
What would you do if you were Microsoft? If big Steve tapped you on the shoulder and said, your turn?
Here’s my strategy …
- A lightweight operating system. Forget backward compatibility. Just needs to run Office v.next which has to be compelling. Make it not need a hardware upgrade. Less is more. Open Source it.
- Leverage the Office platform for a powerful Software + Services model. Collaborative Office has to be the goal.
- Win the Enterprise. That means double down on SharePoint, but make it a database, not a collection of objects.
- In fact promote everyone in the SQL Server team. The Enterprise is about databases.
- March out everyone in the Exchange storage team. Exchange is your corporate anchor. There has been no innovation for years. You need to port it over SQL Server immediately. Shoot anyone that stops you. Mail is a database application. Period.
- Clean sheet redesign or your mail client. Mail is broken at all levels and is the most important application.
- Buy a big Services company. Maybe HP. Microsoft has to be the new IBM. Straight partnering won’t cut it anymore.
- SilverLight has to win, or buy Adobe. Don’t let Apple get them or you’re done.
- Resurrect Internet Explorer for OSX. You’re going to loose OS market share in the short to mid term, at least have a chance to keep them in the browser.
- Lock in Dell. As computer hardware gets cheaper the OS becomes the biggest cost. They’ll go Linux unless you fix those relationships with a great OS. You need a tighter hardware/software partnership. Surely together you can build a stunning computer. Look at OLPC2.
- Significantly up your Open Source strategy across the board. That will win back the geeks.
- Win the SMB market. No one there yet and they already have Office.
- Do lots of small acquisitions to fill in the strategy.
- Platform as a Service (PaaS) .Net and Windows Server with compelling licensing.
- Sack all the existing design guys and hire a design dictator who overseas everything. Microsoft Web properties, packaging and applications are ‘over designed’. You need someone who understands less is more. Not Chris Bangle but like a Chris Bangle at BMW who drove design.
- Do a total redesign of the Windows Mobile interface. It is not a scaled down desktop computer. It is a handheld device. Hire some RIM guys to do it properly. Or buy RIM.
- Maybe use some cash to buy or lock in a global fibre network. Vertical integrate your Enterprise Software stack with the network layer. Then you can QoS connected applications and add value to the stack with Enterprise Messaging Services, off site back ups etc.
- Xbox/Media center has to be default lounge computer. Double down but really model user scenarios so it works as people want to.
It’s a big list but MS has a big team, the brains and the resources.
Heading into territory I’m not that comfortable posting about here but I feel really strongly about it, so here goes.
I’m going to talk about the Kahui case.
Yeah I know that my situation is different from that family, but most of us with busy careers are parents as well. I’ve got 3 under 5 and like many busy working parents you can’t cheat your kids. No matter how much money you have or don’t have it’s all about spending time with them. I try to be there for bath time, read stories at night and try not to work to much in the weekends.
Regardless of who eventually killed the twins it was clear from the evidence that the kids had been beaten regularly throughout their short lives. That is unacceptable in New Zealand or anywhere.
When the event occurred it sickened us that the ‘tight twelve’ held out for so long. They should have locked them all up immediately.
Something has to happen here. One parent is most likely a killer. Both failed to protect their kids. They both need to be locked up. If not for murder then for abuse. The wider family need to be charged for obstruction and repeatingly not protecting the most defenseless of their whanau.
Given the timing I suspect the police are making a political statement by not pressing further charges immediately. These matters must be concluded quickly.
Adding an iPhone interface to Xero obviously makes a lot of sense. It’s a web application but optimized for iPhone delivery. It’s not the full Xero application so we want to hear what scenario’s will be useful.
As m.xero.com is a web interface, what we have done requires a connection. Probably OK for most scenarios but there are some ocaasions where it would be useful to have a native iPhone application. Expense claims would be a good example.
However the way that Apple are controlling the distribution of iPhone applications, my understanding is that we cannot just put up an iPhone expense management application for our customers to download. We have to put it up through the store.
This is fine for iPhone only applications.
As a SaaS offering we already have a billing link with our customers. We may not want to charge extra for an iPhone application. We’d just want our customers to download something from our website to improve their experience.
Does anyone know how Apple is planning to handle these partial iPhone applications that extend other services that not primarily based on the iPhone?
Good to see business leaders like Simon Botherway getting into it …
Dismiss TVNZ’s Sky break-up call
We are definitely entering into looney times in regard to what the government intervenes in so as Sky investors you can see why he is motivated to squash this.
But it was also interesting that Simon mentioned this …
… there are numerous distribution pathways to the household. Not to mention the imminent prospect of broadband distribution.
The Internet is close to replacing traditional broadcast distribution as I mentioned here …
TVNZ through the Freeview consortium is in a ’walled-garden’ battle with Sky, resulting in the New Zealand tax payer and television viewer required to buy dual hardware unnecessarily to get the full suite of available content.
The NZ consumer is going to be mighty pissed soon when they realize they won’t be able to record HD content even after laying down their loot for two new decoders.
In parallel with this there is the Fibre to the Home aspiration. (I’m not a supporter of FTTH, and feel that the NZ broadband debate is drifting back to internally focussed FTTH and broadband for all rather than the much more important international links and getting businesses connected - but I digress).
The reality is there is only so much money available per household for content services. That means newspapers, telephony, magazines, pay tv, video rentals and mobiles. Maybe it’s $100- $300 per month.
The market for people that will pay for both a PayTV subscription and a super high speed broadband subscription is a lot smaller than the market that would pay for either of those.
FreeView feels less regulated than Sky. Already people are connecting to FreeView using commodity tv cards and PVR software like EyeTV. I believe they can record programs in HD. Adding a computer to the mix starts to blur broadcast TV and IP based TV.
So as the Government owns both TVNZ and needs to build a business case for FTTH perhaps a strategy that TVNZ can use is to lead the world in IP based television. Deliver TV content over an internet connection and suddenly the money a household spends on television can be diverted into contributing to a fibre connection.
IP TV is coming anyway. TVNZ could embrace it and while the government makes the case for FTTH much more compelling and reduces take up risk.
Now that would be a game changer.
What really bugs me about the budget is the lack of any sort of vision for New Zealand.
Thomas Pippos from Deloitte nailed it best for me.
Corporate vision sadly missing from the equation
But what’s missing in both Budgets is the vision to do something different to keep businesses here.
… we can actually influence corporate behaviour rather than just observe it. If everything is left to a competitive market and we play with a straight bat, we will lose every time. Every other jurisdiction “cheats” - they play to win. Capital and labour has never been as mobile.
Rodney Hide also nailed it
The trouble with Dr Cullen’s Budgets is that they are all about carving up the economy cake rather than baking a bigger one.
Australia is eating our lunch. Isn’t about time we got in the game?
Out today is an iPhone version of Xero.
I’ve been using it for a few days and it’s really cool. With the upcoming launch of the iPhone 3G we wanted to get it out there and see what scenario’s people want. Expense claims is an obvious one we’ll add soon.
Here is the press release …
Xero now available on the iPhone
Xero announced today the release of a customised Apple iPhone version of their popular online accounting system.
This allows people who have an iPhone (or iPod Touch) to use Xero to access all their bank balances and recent transactions from anywhere. It also provides the ability to call any contact with one simple tap.Xero Chief Executive Rod Drury said this gives business owners easy access to crucial information at all times - one quick glance at a small device in their pocket provides unlimited flexibility and mobility.
“We believe the iPhone is a breakthrough device and with signals that a 3G version will soon be available in our core markets of New Zealand, the United Kingdom and Australia we believe now is a good time to introduce an iPhone version of Xero and get feedback from customers.
“We believe online accounting is the core information system for small businesses. With Xero, businesses are beginning to see the power of linking their mobile front line staff to the back office.”
Xero for the iPhone is available immediately to all Xero customers at no extra charge, customers can simply login at http://m.xero.com. It’s also available for anyone to try for free by signing up at www.xero.com.
We also added blog comments today as we shifted to WordPress. Tell us what else you want here.
I was at a meeting last night with a number of senior people in our ICT industry. One of the discussion threads was what aspirational goals should we have as industry.
Buoyed by the broadband discussion last year I think we’ve seen that you can actually change things if you get coordinated.
Some of the general themes we’d like as an industry would be around
- Encouraging more people into the industry
- Certification programs
- Immigration
- Education
But what would be some specific and measurable things we could achieve if we worked together?
Here are some that I’ve been thinking of.
- Establishment of an ICT procurement ombudsman, so that procurement issues can be raised without the vendor being penalized in the market.
- A work visa program between New Zealand and Silicon Valley so that we can send our talented people up to work there for a few years and bring experts down here tightening the relationship between ourselves and the center of the tech universe.
- R&D tax credits limits lifted if you are exporting products developed from that R&D.
- The industry supporting Government initiatives on Online Identity Management for individuals and businesses facilitating electronic commerce. We could lead the world here.
What do you think? What else could/should we do?
So good …
… when US companies start marketing against you …
Excellent. You should definitely check out Netsuite before looking at us.
http://www.netsuite.co.nz. Tell them I sent you.
Ask them about pricing. For some reason it’s not on their site. Here’s ours.
Interesting to benchmark how they are doing.
Big milestone today as we put out first annual result as public company and checked off where we got to against our offer document issued a year ago.
We only have a few slots a year where we can talk about how we’re doing so for what it’s worth here are some comments and a few things I’ve learnt over the last year that will hopefully be useful to others in the software industry.
Firstly, it’s obviously great to get an IPO away as we did last June. But once the hangover clears you realize that you are on a treadmill and you have to deliver on your promise. There is no hiding. If you screw up you screw up big. And in a small country like New Zealand that means moving to Mexico. To borrow Rowan’s poker betting analogy (you can imagine the hand actions) - it’s an ‘all in’ strategy.
That can be pretty scary but for where I was at in my career I liked the step up in responsibility to do a public company. I believe it is the best/only way to build a significant software company from NZ. All in.
You soon learn it’s a merry-go-round you can’t get off. There are no days off when you are in a public company. You can’t say ‘I don’t like it anymore’. You took the money, you have to deliver. It’s pressure that never goes away.
Because from the start Xero was going to be a public company we engaged great advisors to help us early one. The IPO process and subsequent activities around being a public company are not that onerous. Being public was baked into our DNA from the start. Good governance makes the business better and forces rigor and disciplines that are good practice. This is especially good for the entrepreneur as creates the platform for operation excellence needed for success. I hope other NZ software companies go down this route as well. It just creates better companies.
Having a great board is vital. Our board has a mix of experience and are very challenging but supportive. After a board meeting our management team all feel like we’ve done 10 rounds in the ring but you also know the business is better.
When you plan a business the main things are costs and revenue. You can manage costs, but you can’t directly manage revenue. You can manage the things you do to create revenue but it is not completely in your control.
So made made very sure that we kept our costs within budget. That was completely in our control so we just had to do it. But you take money to invest - not for it to sit in the bank - so you want to make sure you spend up to, but just under, your plan. You can see that in our results.
The revenue curve we experienced was where we learned the most lessons that will be useful for other new SaaS providers.
In most start up business plans you see the infamous hockey stick revenue curve. You see it so much that you discount them. I think we had this in the back of our minds when we did our forecasts 16 months ago we did a more linear curve. But we did experience the hockey stick. With the benefit of hindsight I think we understand why the hockey stick occurred, especially in our market.
A key reason is that accounting systems are sticky. They are not a whim purchase so you tend to validate a change decision with other people. So word of mouth endorsement is a key aspect of the buying process.
You also need to just be around for a while. You don’t change your core information system to a company you have only just heard of.
We also believed that, in our market, accountants are an important validator. We weren’t expecting such a favorable response initially but when they did give us the feedback that Xero was going in the right direction in July/August last year we took the longer term view that we should focus on them first. This delayed adoption as they are less likely to change a customer mid financial period.
That decision also delayed ARPU features we had planned as the accountants message was get the core accounting engine complete first. This was a plan departure which we had to announce. Our philosophy, as an early stage listed company, was to be upfront about what we were doing so we explained that to the market at our half year.
For SaaS vendors the first customers are the hardest. You need to build the base for the word of mouth effect to take place. We took a hand-to-hand combat approach. It was just hard one-at-a-time stuff. Lots of events, presentations and lots of phone dogging. Not glamorous but effective.
It starts off with a sale every few days, then you up to one every day, then 2-3 a day and it goes up and up. 1300 seemed a long way away but we knew that we were building the word of mouth effect and that eventually it would kick in and get easier. It was so satisfying when we got customers that we hadn’t spoken to. With each new software release we’d remove another objection, then another and another.
As we were building out our functional breadth over the year we had to sell what we had, not what we were going to have. That means finding verticals that matched our feature set at that time.
Coming into our first key change over period, March/April in NZ, the hard work we did earlier in the year paid off and customers accelerated quickly.
We noted an unintended benefit of the ’small releases frequently’ model. Normal the feedback cycle for software is so long and often annual or worse. Releasing customer driven features every few weeks accelerated our trust relationship with customers and partners.
We learned, and continue to learn, a lot about marketing to small businesses. This year we tried lots of things deliberately to test what worked and didn’t in the small business market.
The biggest lesson was that small business owners are really busy and that they are not listening for you. Even now I’ll speak at a business event and many people have not heard of Xero. (Did you not notice we listed on the stock exchange last year!). Surprisingly, many accountants we meet still have not heard of Xero. That is a big reality check as to who really cares what you’re doing.
We experimented with newspaper ads and radio. We heard anecdotally that people had seen the ads and they may be good for brand building (which is very hard to measure) but we noticed almost no measurable action from horizontal offline advertising. A PR based approach was much more cost effective and generated many more comments. When we took the message vertical and more tailored to specific industry pain we saw a better response.
We noted it is very hard get people to do an online action in response to an offline message. Online advertising to an online response gets a much better hit rate.
In the end, at this stage in our life, its word of mouth. And that means delivering a great experience, great support and listening.
So how did we do? We achieved our primary objective, hitting the customer number and building that solid base of customers to grow from. We have more cash than planned so that makes our runway longer. I think we have removed the key risk elements and Xero is now all about sales execution. Getting customers in the UK was major milestone.
What was the best part? Having the resources to build a team of talented people and get them all working together to create something special. I just love seeing what our team comes up with and the results of smart people working together.
What would we do differently? There were a few key functions we should have done before launch that took a while to retrofit in later, but I can’t believe how much we’ve got out in the last year. Even more R&D would have been better.
Would you do Xero again as a public company knowing what you know now? Absolutely. In this space you can’t separate your funding strategy from your business strategy.
What’s next? Well last year was about putting the platform in place and doing the things we had to do. This year the fun starts as we exploit that platform. We’re all really excited about the next year!
Managed to get back up and connected with my old BlackBerry 8700 that seems to have been passed through the office. While the 8700 is chunkier it immediately feels easier to use than the smaller and newer BB 8310 Curve. The click wheel is much more natural to use than the trackball and the keys are better spaced.
When submitting my Curve for repair our tech guru Keith quipped … you may have exceeded the lifetime number of messages a blackberry can send.
I got a cheap phone in Queenstown to get by for a couple of days and it was awful having to do txt on a kybrd. Smartphones are so much easier to communicate with.
Quite liked the accounting analysis of the rail purchase from Craig Foss.
Dr Electoral Expense $235m
Dr NZ Rail Network $430m
Cr NZ Taxpayer $665m
Just into a multiday trip and my BlackBerry died. No email, no phone, blank screen.
I haven’t not been continuously connected for 5 years. This is very weird.
To avoid throwing up I’ll try to treat it as an experience. No mobile for 2 days. Don’t like it.
Responding to a comment on my last post. All companies should have a concise company summary. When you are making contact, especially over email, it’s essential you present clearly who you are.
So you get the idea, here is a sample one that we use for Xero.
Whenever I send an email to a person I haven’t met before I normally attach this so they can see who we are. We do a slightly different one for the UK.
I did a session last night at an AngelHQ event on the subject of DD. I’ve been through a few of those. Phil from Movac spoke and gave a great perspective of DD from an Angels perspective. I’m usually the DD’ee not the DD’or.
Andrew Simmonds from SimmondsStewart had some great practical advice during the sessions. Andrew and Victoria have done lots of Angel investment work and really understand all the issues around startups so I recommend you talk with them when you get set up. They can work you through Shareholders agreements and all the other legal things you need to get sorted.
DD is a fact of life for small companies so my advice is to understand it from day one and always be ready for DD. Having all of your information to hand is a good discipline for business owners to get into.
I’ve used John Horner from Quigg Partners as well on a number of DD projects. John was happy for me to post this DD checklist so you can see the sort of things you need to think about.
Quigg Partners sample DD checklist
For me the main things an early stage tech company should keep on file are:
- All material contracts
- Shareholders agreement and constitution
- Employment contracts
- A register of all 3rd party components you use and their licenses
- Any NDA’s (you are dumb enough to sign)
- Board minutes
- Financials for each month (easy in Xero)
You can now export any of your reports in Xero to Google Docs.
As we’re getting there with the core accounting functionality we’re now able to get some of the really cool things we’ve been wanting to for a while into the product.
Another cool thing we’re done recently is integration with other SaaS providers. It was good to work with the iPayroll team who helped us test our API functionality. Here is the combined help for Xero + iPayroll.
It’s magical to see complex business data moving automatically and securely between systems and really shows how we can use technology to make things easier for small businesses.
You can have a look at the API at http://network.xero.com. We provide a partner test rig so that it’s easy for other companies to develop and debug their interface with us.
Congrats to Wellington game guru’s Sidhe shipping Speedracer.
Sidhe shifts a gear with Speed Racer
Warner Bros. Interactive Entertainment Presents Speed Racer - the Videogame
As a developer of business software I’m in awe of how much work must go into a video game.
Astoria is my least favourite Wellington Cafe. They have deliberate designed their customer experience to be annoying.
- No Trim milk. I’ve been asking for 8 years. Every second person asks. “No we don’t do that”. Grrrr.
- Please wait for your coffee. WTF ?!?!. I have an important meeting with my guest waiting at the table while I’m wasting 5-7 mins waiting for a surly barista to make the coffee. I’m seething. If there was an Astoria doll I’d be putting pins in it.
Astoria has had this feedback for years, yet value their processes above their customers.
Voting with feet. Never going back.
NZ Internet identity Peter Mott of 2day fame (sold to ICONZ a few years ago) is back in the market with a new hosted service based on virtualization.
Swizzle Business Model
Simple and practical
Like an ocean going yacht, we have two or more of everything that’s important, and things that are not so important don’t exist.
This means you don’t pay for unnessary frills, and what you do pay for stays running.
Core ingredients
- HP Proliant DL series servers
- VMware ESXi Hardware virtualisation
- The Swizzle web site
HP enterprise-class servers, especially with the amount of processor, memory, disk and redundant options we run in them, are often well beyond the budget of a small business.
Fortunately, with the aid of hardware virtualisation we can slice them into a number of smaller servers (virtual machines) and rent them to you at prices that fit your IT budget.
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