May 24, 2011
In the four or so years since Xero launched with great fanfare in New Zealand, moved on to Australia and gained a modicum of visibility in the UK, many of us have been waiting to see what would happen in he REAL market, that of the US. While I personally believe that a major US entry is the wrong move for Xero, I’m also intrigued to see how this company – that has so much personal credibility in its home market – will do in a marketplace where it is a virtual unknown. Backing up a bit to explain my concerns around a US market entry, I’ve said previously that Xero should really concentrate on gaining meaningful market share in the markets it is currently operating in. Having spent significant time in the US market and talking to accounting software vendors there I am aware just how big and expensive market launching in the US. That said, the level of investment that Xero has had dictates, at least to a certain extent, the necessity of a US market entry.
So it’s been interesting to see some developments in Xero’s US initiative. Some of these issues have been discussed in an NBR article which, unfortunately descended into an opportunity for some people to approach the issues from a perspective of ad hominem attacks. That does nothing for the level of conversation and really should be avoided. Notwithstanding the immaturity however there are some really interesting issues raised in the comment stream. Anyway, back to Xero’s US market entry. Some highlights;
Investment Dollars – Some Guy Called Thiel
Six months ago Xero has perhaps their biggest international validation to date when Peter Thiel, co-founder of PayPal and angel investor in Facebook, invested a small amount in the business. True Thiel can afford to lose significantly more than he invested in Xero, true Thiel invests in companies every day but nonetheless it was a validation and one that Xero will leverage for its US market entry.
In something of a contrast to the approach in their other markets, where they’re all about partnering with institutions nd being seen as “top shelf”, Xero took a stab sponsoring the Statuup Bus event that put a bunch of developers into a bus and drove them from around the US to the SXSW festival in Austin. It was a good way to build a degree of awareness as Startup bus was covered by many tech blogs and it was a reasonably high-profile event for the web esigners/developers that are a traditional arly adopter customer base for Xero
While attending SXSW I was impressed to see Xero CEO Rod Drury hustling hard at a Small Business Web networking event. While other vendors were happy to chill out, have a few drinks and chat with their peers, Drury was hard out demo-ing the product. I had some concerns about how the Xero culture would translate to the US, in their home market, and primarily through the credentials of Drury and investor Sam Morgan, Xero has great credibility. This could easily have translated into Drury coming into the US full of bluster. I was pleased to see a humble approach (well, humble in the rarefied tech sector anyway) from Drury and the team.
I read a blog post recently from US accounting firm The Sleeter Group. Sleeter is a group that has 600 consultants throughout the US and Canada serving around 120000 businesses. If you consider Xero’s current customer base is somewhere north of 30k – that’s a pretty significant partnership. In the post Sleeter talks about something that one would have expected to be old hat for people in this space, the ability for connected web applications to reduce data entry and allow practitioners to focus on high value work. As I said, that should be a theme that accounting practices have understood for years now, he act that it appears to be an (in their words) “A Ha moment” indicates just how immature the market is, and why whoever gets to scale first in the massive US market will gain real stickiness.
Having a partner evangelize this message is significantly more valuable than Drury yet again telling his story – and it justifies the investment which I’m assuming Xero has made to on-board partners such as Sleeter.
It’s true that Xero is burning money incredibly fast and, while making good progress adding customer count, is arguably not doing so at a rate commensurate with its valuation. The indications are however that the growing momentum in the US will pay off in the next 12 to 18 months and we’ll start to see the graph move in a positive direction. Watch this space.