This week I attended my first Xerocon, the user conference put on by cloud-based accounting platform Xero . And while the company is not yet a household name in the US to small businesses, they have over 1.2 million subscribers, and more than $1.5 trillion of transactions have taken place on their platform, according to CEO and Founder Rod Drury.
Cloud-Based Accounting Trends
Below is an edited transcript of my conversation with Drury during Xerocon. He shared with me why cloud-based accounting provides a great platform for AI, why he wants to help turn account advisors into growth consultants for small businesses, and why it’s important for small businesses to become global exporters in order to grow. To hear the full conversation, click on the video or Soundcloud player below.
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Small Business Trends: There’s a lot of things I’d love to ask you about, we don’t have enough time for all of them, so I’m going to pull up a few of them that really came to mind.
Rod Drury: Cool.
Small Business Trends: Now, you said that there’s been $1.5 trillion of transactions that have flowed over the Xero platform …
Rod Drury: Just in the last 12 months.
Small Business Trends: That’s amazing. And you just went over the million-subscriber mark, you’re at 1.2 million?
Rod Drury: Yep.
Small Business Trends: So that provides a rich set of information. Can you talk a little bit about how that data, married with what you’re doing with machine learning and AI, is proving to give you some interesting insights that you’re able to share with your advisors and your customers. Maybe you could talk about the importance of that to your business, and to your customers?
Rod Drury: Google kind of models the world and everything on it, and they’re doing an amazing job in machine learning and AI. But we think small business computing and small business software will probably be one of the leading places you see AI work for you.
And why is that? Well, because one, we processed $1.5 trillion of data last year, so that gives us a massive data set. And the taxonomy that we need to take those transactions, and code them in, is relatively small. So we’re already seeing a 90% plus hit rate, if we take a raw financial document and load it into accounting software.
So what does that mean? Well, what it means is that we can deliver what we call code-free accounting. Because the problem with accounting is that, like a landscape gardener or tourism operator understands their business, they may have done some basic bookkeeping but they’re not really accounting professionals, and yet we ask them to do it. So traditional desktop software got to maybe 5-10% market share of the addressable market. Cloud accounting, we’re seeing in New Zealand now, where Xero’s pretty mandatory, 38% of people use it. So cloud accounting’s made it easier.
But how do we get to 90% of people using accounting? Well, by not doing accounting. You just send your documents in and we can machine-vision anything where the source data’s not there to get the metadata in the document, and then we can use that to code it into the accounting engine.
And what that does is massively grow the market for accounting advisors . So on the accountants side we then make sure we’re giving them the tools  to allow them to scale to all those new customers. So that working on making accounting super, super easy, and then having accountants connected to a small business cost-effectively, will see accountants move in to be growth advisors, so we can create jobs at scale in the small business sector.
That was my keynote.
Small Business Trends: Turning them from accountants to growth consultants, and using your platform to help with that. How important is that to your advisors? Taking those insights and allowing them to provide better service to those customers?
Rod Drury: Obviously there’s things like benchmarking, you would expect, giving them insights. What’s the next action? We can use that machine-learning data to alert an accountant or bookkeeper, “Hey this is a client that needs some attention. Or there may be a consulting upsell opportunity.”
But we’re going further than that. What we’ve done on the accountants’ side is we have a curated set of apps in our eco-system. So rather than us trying to do it all as a single vendor, we have a great community of apps. Over 600 certified apps, and 40,000 certified developers building apps on our platform. So what we’ve done is said, “If you’re an accounting firm this is your core systems of record, your client list, your activity list, your staff list.” And we’ve agreed to work with all these add-ons to respect that, and then build their own functionality that embraces that key system of record.
We’re able to add new tools, like marketing tools, so we can make it easy for accountants to talk to their customers. And further, we can inject content and playbooks, so we’re giving accountants growth strategies, and these plays that they can go out and run on a segment of their customers. So it’s really cool because we’re moving away from just delivering software and shipping it to an accountant, to actually being a business partner, where we can do some heavy-lifting on marketing, content, strategies, insights, all sorts of good things.
Small Business Trends: You talked about also wanting to turn your small business customers into exporters. And how you have these platform partners like AWS and Alibaba to help with that. Can you talk about that a little bit?
Rod Drury: If you think about you’ve got a small town in the US. Maybe it was a manufacturing town in the ’70 and ’80s, and that factory might be closed down, right? So it’s very difficult to see for all those towns, those factories will ever reopen, those sort of jobs are very unlikely to come back again. In fact, most large enterprises are using technology to reduce their workforce. Therefore, if you want local, regional jobs, it’s got to be in small business.
But you’ll only get so big selling to each other, right? So we’ve got to take all of our people, if you want to live in that beautiful little rural town, or that small village, rather than everything globalizing and you having to be in the big city. We’ve got to make sure that we’re arming our small businesses with the tools to trade globally. And that’s as simple as being able to do a live meeting web demo, or be part of a virtual video conference.
But what we’re seeing now is the marketplaces already exist. So if you want to deal with Asia, there’s Alibaba, millions and millions of consumers. If you’re a tourism operator you’ve got the Chinese market who will be searching, and googling, finding you. They may want to communicate and ask questions with WeChat. They may want to pay with Alipay. They might want to buy some niche presents for you to send to them, and get all that logistics working.
I think it’s our job as business advisors to show our local customers how to use these tools and platforms to get into these big marketplaces that already exist. And so we can turn small businesses into export, and there’s something magical about when you see that money from overseas arrive in your bank account, right?
Small Business Trends: Very nice. We’re in 2017, what is surprising to you today about small businesses?
Rod Drury: What’s surprising me is how global they’re already becoming. You take our accounting channel, what blows me away… I’ll be in Hong Kong chatting to a partner, and they’re talking about another partner I just saw over in London, and they’ve formed a collaborative business over these platforms. And we have Australian accountants here in Denver, who have come up here to form relationships with US accountants because they have clients who might be exporting, or maybe a sports star that operates out of here. They want to find a relationship with a like-minded person.
It’s really cool. We have quite a lot of moms who may even be solo parents who, now, they’ve struggled with being in big firms because they’re trying to get their life balance right, but they’re becoming global experts who can now collaborate with a whole lot of people all over the world. And that’s just awesome.
Small Business Trends: So, you’ve been in the US market for a while now?
Rod Drury: Yep.
Small Business Trends: But still a lot of small businesses really don’t know who you are. Take a minute or two just to tell those who don’t know, what they should know about you guys?
Rod Drury: Xero with an X. We’re a global small business accounting product. Single version of the code, we host it on Amazon Web Services, so it’s all here in the US, and we’re the biggest provider outside of the US. And we’ve seen how economies are absolutely changing now, with this focus on small business. So if it’s you’re first time to accounting and the traditional products don’t work for you, I think you’ll really love Xero. You’ll love our community, and if you’re still using that old, crappy, desktop software, Xero’s where you should be.
Small Business Trends: There are still so few small businesses on the cloud using business applications. What do you think it’s going to take to get them?
Rod Drury: Yeah, they just need to know about it. What we’ve got to do is not just deliver a better mousetrap, we’ve got to deliver a fundamental different experience.
And it’s the human stories. We have accountants here that come up and say, “You’ve changed my life. I wanted to move back to my state but my client base was here.” Now location doesn’t matter. That’s a really good thing. Or we have accountants who haven’t taken overseas holiday because every week they’ve got to do clients’ books. They can travel to Europe with their iPad and keep things moving along.
So that experience that accountants are having, we need to transfer that and show our small businesses the freedom they can have by having tools in the cloud. And I think, even now, security is such a major issue. All of us cloud vendors live and die on it. And if anything goes wrong, or there’s a security thing, we normally know about it. We do a lot of anomalous login detection, and if anything goes wrong, 30 people’s pages go off and we’re all over it. Compared to that hard drive dying underneath the desk and then being pretty lonely for two weeks, these are the platforms where successful businesses are growing.
And we see it in all the numbers. People who are using cloud accounting, and a combination of apps that are pre-connected to cloud accounting, are just making more money and having more time off.
Small Business Trends: One last question, you mentioned that you thought your industry is the best suited for really leveraging AI and moving it out to the masses. Can you talk a little bit about that?
Rod Drury: It’s because we have so much data and a small taxonomy, and we’ve raised over $400 million of investment. So there is so much energy going onto business apps for small business, this is a hot, hot sector. And because it’s relatively straightforward to get the benefits of machine learning, this is where people will see it first. So, it really means for the next 10 years the small business technologies space is going to be a huge amount of fun.