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What a year

2012 was our biggest year yet at Xero. When I went back through the blog and company announcements this year there were too many achievements to list. So instead I’d thought I’d finish the year with ‘where are we at’ and ‘what next’.

Firstly, thank you to our many customers and partners. We understand what a massive responsibility it is to look after your financial information and that many of you are betting your own businesses on us. It still blows us away that we really have made accounting fun and interesting for so many people. It’s amazing.

Thank you to our shareholders who provide us with the opportunity to grow our team and build this company. And thank you to our staff who are completely passionate about what we’re doing for small business around the world. It feels really good being part of a company that is innovating and doing something purposeful and good.

This year we’ve got through a solid program of work and delivered many of our most requested features, along with lots of innovations. For our small business customers you may not have seen the massive amount of work we’ve done on the accountant side of the fence to make the Xero family of products compelling for the accounting industry. We believe that small business accounting software on its own isn’t sufficient long term and we needed to build a compelling platform that connects professional advisers with businesses. We’re very pleased with how that’s playing out. With those workstreams well underway, and many key features already delivered, we will be focussing over the next year to complete the breadth of horizontal accounting features you’d expect in a mature product. A lot of this is well through development and you’ll see some big releases in 2013.

Internally we’ve been working hard to build our teams. We doubled to over 300 staff this year. Most are now up to speed, and so with that increased capacity expect our rate of innovation to accelerate. We’ll continue to grow our team significantly for the next couple of years as we are still a minnow compared to the incumbents but we are getting through the work.

Our volumes went through the roof this year as customers doubled, customers did a lot more on the platform, and many now have 3-5 years of transactions in Xero. We’ve been investing heavily on our production infrastructure and the operations team are best in class. Over the Christmas break we’re doing a full platform upgrade which gives us the ability to scale up to our 1,000,000 customers mid term goal. Xero is a big and complex set of applications running on hundreds of servers. It is a massive investment to stay ahead of growth. The days of just a couple of servers in the corner are well past.

A key moment for me was Xerocon in Melbourne, and our Gold Partner lunch where 60% of the conversation was about add-on partners. With well over 100 add-on partners now, 2012 was the year Xero became a platform. Small business can now select all sorts of innovative solutions that are already integrated with their accounting software. This is a fundamental change for small business software and a very exciting development.

Competitively we saw the inevitable struggle of the incumbents as they started to come to terms with how disruptive the cloud is and how hard it is to shift legacy business models. Some of the incumbents got their cloud products to market with the consequences of compromised technology decisions made several years ago becoming immediately obvious. It’s so much easier being able to start from scratch and get the foundations right.

One of my favorite sayings is ‘it’s not the big that eat the small but the fast that eat the slow’ and we’re seeing that play out across the industry. The internet is allowing nimble businesses to quickly emerge, disrupt and get to scale. Our model of developing both accountant and small business solutions on the same shared platform is a great example. Removing the double dipping of the separate desktop business model is a fundamental re-architecture of the accounting industry but completely logical as small business owners and their advisors work together. There’s little doubt now that a vendor transition is taking place. This will cause stress in the industry as career long relationships are being challenged. From a sleepy industry just a few years ago the accounting software space has become dynamic and interesting as the inherent size of the small business opportunity is unlocked by cloud computing.

In New Zealand we have moved to the next phase and winning business in the 1st and 2nd tier firms with many full practice conversions. Australia is smacking it out of the park as our fastest growing region and we’re excited about getting Report Packs out next year. The UK is also firing on all cylinders with some great new senior team members (it was such a treat to meet our UK partners at Xerocon UK this year). The USA team has executed their early entry plans and done a fantastic job getting Xero known by US accountants and we’re expecting an exciting 2013 there.

In our early markets where we have ‘got to scale’ we’re seeing an exciting increase of inbound enquiries from large companies that can see how we can help their customers by linking their systems to Xero. We believe online accounting creates a cost effective way for large businesses to interact with small business and we’ll see much more electronic connectivity delivered which will reduce costs for small business and speed up transactions. An early example of this is banking. We’ve had numerous workshops this year with banking teams and have been working on a number of new joint services that we hope we can roll out next year. This is a process that has taken several years but we’re seeing real progress now. Also we’ve been having great discussions on Government web services. We hope to see some of those appear in 2013 as well.

Heading into 2013 our team has a clear focus on a number of big items. The ones I can tell you about are:

  1. Completing the platform. Any small business should be able to run on Xero. We want to be able to tick all the boxes. That means simple stock and the ordering processes.
  2. Practice efficiency. Using the power of having large numbers of a practice’s clients in a single relational database platform, combined with integrated practice applications to provide a compelling practice platform for accountants.
  3. Further innovation that will reset what you’d expect your accounting software to do. With the traditional features almost there we have a number of innovations that will seem obvious and natural once you start using them. We still get a kick that no one asked for bank feeds but now they’ve become a mandatory feature for all accounting software. We like to think we have a few more of those up our sleeve.
  4. Make our service smarter and have it working for you while you’re sleeping. We have so much opportunity to add value here. Our teams are chomping at the bit to get into some of these projects.

We end the year with over $85m in the bank and a big team that is absolutely having a blast helping our customers and partners. We’re really proud of the massive progress made over the past year.

You simply ain’t seen nothing yet.

See you all again in 2013.

 

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10 comments

James R
20 December 2012 #

Fantastic Year. We changed our accounting software to Xero 5 years ago now. The feature set has grown massively in that time and we don’t pay any more than we did 5 years ago.
I’m also stoked that I bought shares shortly after signing up to Xero (because it was so much better than all the other software I had used) and they’re now worth 10 times the original value!
Thanks on both fronts.

Jennie Smith
20 December 2012 #

We are in total agreement with @James. But am really mad that we didn’t buy shares at the start. It was a ‘gonna gonna gonna buy’ but never got around to it. Merry Christmas to me – ‘buy buy buy’. Thanks Xero for transforming the way we run our bookkeeping business. Bring it on in 2013!

Tamara Pesnjardo
20 December 2012 #

Well done guys. It has been an incredible year for Xero and it’s been great watching you grow like this. Love our Xero shares as well! I wonder what 2013 has in store for you. We’re really looking forward to sharing your new Melbourne office with you as well! GeoOP

Michael Mori
20 December 2012 #

The underlying ethos of my business is helping small business – there is no company more able to really help small business than XERO, I love my partnership, thank-you! You live, breath and eat helping small business – fantastic. Love the music too.

Tony Austin
20 December 2012 #

The best thing out of all this software competition is that the ultimate winner is small businesses and their efficiency.

Gayle Buchanan
20 December 2012 #

thanks so much for your leadership Rod, much appreciated and congratulations

Trevor Smith
21 December 2012 #

“3. Further innovation that will reset what you’d expect your accounting software to do. ”

This is where Xero separates itself from the pack. It’ll be great to ‘complete the platform’, but I’m sure team Xero won’t lose sight of this goal.

“If I had asked people what they wanted, they would have said faster horses.” ? Henry Ford

Paul Dunn
22 December 2012 #

Just awesome to read the confidence and certainty exuding from Xero. And I can tell you that having spent just a brief time ‘on the inside’ in Wellington, that certainty and confidence is well placed. Here is a truly committed team delivering outstanding stuff.

Well done, Rod and the team.

It really is all about CONNECTION and Xero is leading the way without any doubt.

Just loving it and looking forward to working with you even more in 2013.

Earl Rudolfo
23 December 2012 #

Way to go, Rod and the Xero team! Sounds like exciting times ahead for small business that see the value of cloud computing and share the vision of Xero going forward in 2013.

Trevor McDougall
3 January 2013 #

Well done. An exciting company with a great innovative product. I’ll be directing more ofmy clients this way in the future.

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