Xero ready for the revolution and is spinning its web with precision
Tom Pullar-Strecker takes seven lessons from the Xerocon conference in Brisbane.
Xero. It's a corporate, not a startup
More than 2300 people attended Xerocon South, the biggest of Xero's three annual bashes which also take place in Los Angeles and London.
Founder Rod Drury is still very much front and centre, whether he is skateboarding across an exhibition hall or showing off a product feature with his trademark boyish enthusiasm.
READ MORE: Xero and MYOB trade barbs on event day
But Xero is grown-up now, with its own bureaucracies, internal politics and a lot of managers on its various tillers.
Staff might occasionally grumble darkly about decisions being made in Wellington, in the same way many Kiwis are beholden to managers in Sydney.
But better that way around, eh?
1. Accountants may get the last laugh
Accountancy been a "sensible" career choice for generations of graduates.
The bread and butter work of bookkeeping and managing tax returns is diminishing as cloud accounting services help business owners take care of those chores themselves.
Chartered Accountants Australia and New Zealand estimated last year that 16,500 jobs in Australia and New Zealand might be impacted.
But cloud accounting services will put accountants in a strong position to provide business advice that is based on more than just experience and gut instinct.
If businesses are getting ripped on their lease or are underpaying their top salespeople, increasingly, their accountant will know.
Xerocon attendee Dan Henderson, director of Kiwi accounting practice Enable Business, says the pace of change has picked up in the last 12 to 18 months.
"We are at a turning point – you have the 'white knucklers' that are holding on saying 'nothing is going to affect me' and everyone knows that's not true.
"And then you got the firms that are saying 'we have got to change and keep ahead of technology, embrace what's happening in our industry and make a difference for clients'."
2. Small business finance is changing
Entrepreneurs may still need to mortgage their house to get started, but their accounting software may know more about their ability to pay back loans than their bank.
Xero has partnered with Wellington startup Fuelled, which provides "cash flow" loans for small businesses that are secured on their unpaid invoices.
MYOB has bought into the Australian arm of US financier OnDeck which is playing a similar game in a different league (it has advanced US$5b to customers in North America and Australia since 2007).
Bank of New Zealand is paying for some struggling farmers to subscribe to Xero-based farm accounting tool Figured, so it can keep a closer eye on them as they navigate a way through the dairy downturn.
3. The revolution hasn't really started though
When businesses can be "benchmarked" and their data diced and spliced in the cloud, accountants will have won and being an entrepreneur will be more like any other job.
Accountants will be ones who will know when and where to set up a business, its prospects and creditworthiness, and how it should be run (on paper anyway).
Xero digital head Andy Lark is a strong proponent of benchmarking and says Xero is building the tools for it now.
"It changes everything for the small business owner. We are really at the early stages of all of this."
If a business owner wants to play by their own rules outside of that game? Trouble is they will be competing against rivals that won't be flying blind.
4. An opportunity has been missed and it may now be too late
The power of cloud data might be such that businesses owners might want democratic, non-profit industry associations – and not accounting firms or others – to be marshalling it. But there is no sign of them responding to the opportunity.
The Motor Trade Association, the Pharmacy Guild, the Retailers NZ perhaps? None of them, nor any of their Australian equivalents were at Xerocon as far as I could tell.
United States author and "trust" expert Rachel Botsman, a keynote speaker at the conference, reckons the idea of trusted institutions being the custodians of big data is old-style thinking.
"Independent trade organisations and associations are starting to lose their relevance because there are other ways to present data and to collectively protect members' interests," she says.
Drury says they were never going to fill the role. "They just didn't have the commercial people to drive those outcomes." A shame perhaps.
4. In the wisdom of Solomon, MYOB is the one happy holding half the baby
MYOB picked a fight with Xero on day one of Xeron. New Zealand general manager James Scollay said Xero was "increasingly abandoning New Zealand as its focus shifts abroad".
Drury perhaps provoked it. He has long forecast MYOB's demise and retorted it was "a sunset business".
But the companies may have to live with each other.
Australian analyst Ord Minnett forecast in June that MYOB's share of the combined desktop and cloud accounting market would decline but at a decelerating rate, still leaving it with more than half the total market until at least 2025.
MYOB chief executive Tim Reed argues there is "no natural forcing function as in the case of Trade Me that is going to make it dominated by one specific player".
"This has always been a market that has two or three competitors [and] the market commentary is expecting that ourselves and Xero will be the leaders."
But Drury wants the whole pie. MYOB's decision to solely serve Australia and New Zealand will haunt it, he believes, as they are too small to support a "survivable cloud business".
The jury may be out on that for a while.
5. Xero has some real fans
Twitter still lights up for Xero now and again when someone succeeds in squaring their monthly accounts.
Pollster Canstar last month awarded Xero "five stars" for all aspects of its service and MYOB three or four stars. Reed attributes that to the fact that people just like cloud software.
Given MYOB supports a mix of desktop and cloud clients while Xero is all cloud, it is inevitable that surveys will show Xero in a better light, even if they aren't necessarily a reflection on the quality of MYOB's cloud offerings.
That makes some sense, but Xero has some hardcore fans.
Enable Business' Wellington director Mark Greer says its ease of use "speaks for itself".
One of the new features Drury is showing off at Xerocon is its "chatbot", Hey Xero, which lets business owners type questions into their smartphones and get answers to questions such as who owes them money. It can then offer them coaching based on their questions.
He forecasts Xero will be able to drop Netsuite and use its own product to manage its accounts within two years, as its software gains the capability to cater for larger business. "My accountant will now shoot me in the head," he added.
6. Xero isn't about to blow it all on a US splurge
Drury says the US will "still take a couple of years".
Xero is "very conscious of cost" because the conservative US market is not moving quickly away from desktop accounting packages and towards the cloud, he says.
Instead it is relying on partnerships with the likes of US bank Wells Fargo to raise aware of its service.
Drury said Intuit spends US$1.4 billion on marketing but he maintains it doesn't work. So why isn't Xero growing faster in the US? "Because they are a massive brand which has been there for 25 years."
Xero paid for Tom Pullar-Strecker to attend Xerocon in Brisbane.