Nice milestone for Team Xero today as we enter the NZX50 – the “50 largest and most liquid companies listed on the NZX.”
It was just over 5 years ago when we listed. I remember successful entrepreneur Sir Stephen Tindall saying once that it takes at least 7 years to build a real business. At the time I thought “nah, we’ll do it in 3”. As almost always happens, the experience of someone that has done it before was much more accurate.
When we listed we knew that was just the beginning. It was important for us not just to be a public company, but to be a great public company. One that was ethical, respected its shareholders and did something purposeful. We remain very conscious that we could not have done Xero as a public company if it wasn’t for trail blazers like Geoff Ross and the 42 Below team who were one of the first high profile growth stories on our local bourse.
As I’ve explained many times before, the only way we could do Xero from New Zealand was to sell a big story and raise enough capital to build it.
Thanks to the work of our fantastic and growing team we have been able to deliver on our promise and are well on the way to creating a significant global company. Our team is very proud that we have now got to the point where we have joined the big boys on the NZX50.
It’s a really exciting time for tech companies. We are showing that we can build significant new companies from a small set of rocks in the South Pacific as the Internet makes business truly global.
Since we first listed, we’ve raised over $85m dollars on the market through our original IPO, subsequent strategic placements and Shareholder Purchase Plans (SPP’s). We’re most proud of the support our shareholders have given us by taking up the SPP’s and it feels good to allow all shareholders to participate in our placements on the same basis as the strategic investors we’ve brought onto our register.
We get asked a lot of questions. Here are some of the common and more interesting ones
Q: What are the downsides to being a public company?
There are two main ones. First is that senior people quickly build a public profile and in a small country you will get a few rocks thrown. But that’s just a fact of life so you have to develop a thick skin and deal with it. On the positive side of that, though, it’s much easier for senior management people to do their job of keeping the company profile up. It’s much cheaper to have a story written about the company than pay for advertising.
The second one is that we are constantly asked when we will make a profit. Even by very experienced business people. The model of raising a lot of capital to create a business is not common in a small market like ours. But rest assured, all of us at Xero are very motivated to get to break even – life will be a lot easier! But because the space we are in is white-hot and we have been able to raise significant capital we have to spend that investment to grow the biggest long term business possible. If we didn’t spend the capital our investors would ask ‘why have you diluted me?’ Hopefully we’re making it easier for the next growth companies by showing that this strategy can work.
Q: What did you think of the Facebook IPO?
It amazes us that with all best advisors in the world they made so many mistakes and delivered such a negative result. We were also disappointed that the Facebook IPO reinforced some of the Wall Street stereotypes. I think that when you’re in a small market like New Zealand, Directors are very conservative and absolutely ensure they look after all shareholders.
Q: When are you going to sell?
With companies like Yammer being sold to Microsoft we get asked when are you going to sell Xero. I think what sets our senior team apart is that we are very experienced in the IT world and have a clear view of the patterns in the industry.
We’ve seen the consumer SaaS wave which has been a land grab for eyeballs. Big scale but simple apps.
The Yammer deal shows the industry is now into the next wave – Enterprise SaaS. These are complex applications sold to large companies, where revenues can grow quickly. Salesforce was the first to get there with $1 billion of revenue. Of the new generation Atlassian’s $100m is impressive and Marketo is up to $30m, putting it on track for $100m over the next couple of years. Microsoft’s take out of Yammer shows that the big vendors will acquire the Enterprise SaaS players to assist their own cloud transition by selling the new generation products into their existing base. It’s a great space to build up a company to sell and the cloud vendors being bought now tend to have 5 years of R&D so the solutions are getting quite sophisticated.
We believe the next big wave will be the small business SaaS space – complex applications with a low cost to acquire that cater to million of customers, with the likes of Xero, Square and Bill.com. Revenues of those companies are now in the $10-30m range but the customers are not the enterprise ones, the target is the vast and fragmented SME market with no natural incumbent.
That’s the key difference between the small business space (where we operate) and the enterprise space. The enterprise space is very likely to be consolidated, as big companies acquire vendors. In the small business space, by contrast, we will see new global vendors emerge.
So we’re planning to keep doing our thing and see how far we can go. We all really enjoy improving life for small businesses and the deep relationships we’re building with our Xero partners.
And if you have any further questions please ask below.
The best way I can describe doing a public company is that it’s like playing the game with more chess pieces. Having resources allows you to implement strategy and think long term. It’s a huge amount of fun and we hope we see some other tech companies follow.
Congratulations to all of our team in making the NZX50. It’s still early days but a fantastic milestone.