IN GOOD COMPANY: The tough decisions Xero made on its way to becoming a force in global accounting

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Xero CEO Rod Drury. Image: Supplied.

It has been around for less than a decade, but Xero has achieved the kind of growth many founders dream about when they realise their business idea has customer appeal and the potential for rapid growth.

Xero listed on the New Zealand stock exchange in 2007, about a year after its cloud accounting software was first launched. It listed on the ASX in November 2012 and today, the company has a market cap of about $3.2 billion. It’s now planning a possible US listing next year.

It took four founders to get this startup off the ground. They spent some $250 million to build the Sofware as a Service (SaaS) company, and although it has been a noisy and high-profile ride, it hasn’t all been smooth or straightforward.

Business Insider spoke to Xero CEO Rod Drury about some of the difficult decisions that were required as the company grew to take on the global cloud accounting sector. Here’s what he shared.

1. Going public

Xero launched onto the New Zealand stock exchange when it was still a tiny startup operating out of Wellington. It was a decision, Drury explained, that was one of the toughest of the company’s growth story.

“We took quite a lot of flack from that and it wasn’t a play … which had been done before,” he said.

“It was the only way we could raise enough money,” to execute on their plans properly, Drury said. “We’ve effectively done a startup in the public eye.”

Unlike other up-and-comers, Xero has had to publish its results every six months since listing so, as Drury says, “there’s nowhere to hide”.

Drury’s not sure that he would have done it if, from the start, he was fully aware from the start of what it would involve: being the CEO of a company that was high-growth, but not yet profitable, and trading in the public eye. “I don’t know if I would’ve signed up for that,” he said.

Opening up a tech company with huge costs to public market scrutiny meant anyone could pass comment and judgement on the business. Drury said that required him to “have a thick skin”.

“I think deciding to do Xero as a public company has been one of the hardest decisions we’ve made,” he said. “Because we are so public we just can’t muck around… with making decisions.”

2. Engaging investors through expansion phases

Earlier this year Xero landed $US110.8 million in a funding round led by top-tier US venture capital fund Accel. Drury said these days raising is “not much of a problem”.

But in those early times, he says: “That was much scarier, we didn’t know that we were going to be successful or not.”

“We’ve always made sure that we’ve raised money before we’ve needed it… from a position of strength,” he said.

Taking on big investment has now opened up a whole other challenge. Drury explains the past year has probably “been our hardest”.

He said the company had dealt with a bunch of “tall poppy issues” but now its investors want to see solid progress in the US, which he admits is its least developed market.

“US investors don’t understand the great job we’ve done in Australia, New Zealand and the UK,” he said, adding they want to see growth in the US and that’s what the company is focussing on.

The investment leaves Xero with a cash-filled war chest of about $NZ285 million. Part of this will be used to drive US expansion, which Drury admits hasn’t gone exactly to plan but with some recent hires.

3. Managing people through change and growth

Growing quickly requires talented employees.

It also means, however, that the type of people required to get the company rolling changes as the business evolves.

Drury explained because the company was “operating in dog years” people who were once a perfect fit may not be suited to the company just 18 months later.

This meant having “hard conversations” with talented employees, and hiring “on top of people” – something that can put noses out of joint.

“Some people will scale and some people won’t,” he said. “We actively manage it so we get the right kind of people in.”

While having tough conversations with great people is one thing Drury says he doesn’t enjoy, he believes it’s the right thing to do for the company.

Drury openly admits the challenges can be stressful. The experience has been “fun”, however, and for him that’s half the battle.

IMPORTANT INFORMATION AND DISCLAIMERS: The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL/Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article. Bankwest is not responsible for third party websites. They do not necessarily reflect the opinions of Bankwest, nor does Bankwest confirm their accuracy.

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