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Episode 16: Here, there and everywhere with a distributed team

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All Xero In episodes

Hosted by Jeanne-Vida Douglas and Rob Stone

In the years since the explosion of cloud based platforms, small companies have been enabled to expand and operate like large companies, giving them access to flexible work practices and a massively expanded talent pool.

While you may have gained deeper understanding about how to add flexibility to your operations, have you been paying as much attention to the subtle and not-so-subtle changes this brings to your management style?

We speak to Xero CEO Rod Drury about how this conversation has evolved, and what cultural changes will take small business to the next level of productivity.

Small business resources:

How to build a great small buisness team – Xero Small Business Guide

Rod’s 10 tips to make it as a world-class entrepreneur – blog post

Seven considerations for a successful, distributed workforce – Forbes.com

 

Episode transcript

Hosts: Jeanne-Vida Douglas [JVD] and Rob Stone [RS]
Guest: Rod Drury [RD]

Promo

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Voiceover: Welcome to Xero In, home of the entrepreneur’s small business journey. Here are your hosts, Jeanne-Vida Douglas and Rob Stone.

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JVD: Welcome back to Xero In, I’m JV Douglas and I’m here with Rob Stone.

Rob: JV, we’re very excited to have the founder of Xero here today, Rod Drury.

JVD: I’m really excited about today.

RS: Rod talks to the importance of setting expectations, not just from top down, but from the very start of the business, about having an outcome orientated workforce, but then also driving the balance between your personal life and in the workplace.

JVD: Yeah, and I guess Xero was born with that kind of flexibility within it. A lot of the people who use Xero, a lot of those smaller businesses are people who have come out of being an employee. They’re now doing their own thing. They now actually have the opportunity to create a business that has that flexibility as who is, is fundamentally what the business is from the word go.

RS: Exactly. Let’s kick off the interview. Rod, thanks for joining us.

RD: I’m glad to see you guys, and I can see you. We’re on this quite neat technology and talking over the cloud. You’re in the studio and I’m in Wellington, very exciting.

JVD: Yeah, it’s lots of fun today. So that listeners can understand, we’re actually using our video conferencing system, so we can see the interviewees as well as actually listening to them.

RS: We’re based in Sydney, and Rod’s based over in Wellington, New Zealand, so one of the many benefits of being in the cloud. Now Rod, you’ve seen the journey of the cloud, the impact that has on small business and big business alike across the world. Could you start off by telling us how you first came across the development of the cloud and how that then moved into the establishment of Xero.

RD: When was it, the mid ‘90s I guess, where we saw the first bit of software where you could write applications that lived on the web. It was so exciting that you could write programs, deploy them onto a web server. Without anybody installing software they could type in an address in their browser, and then start to interact with these applications. I just thought that was amazing, especially coming from a small set of rocks in the south Pacific that you could actually build something with your brain and make it available for the whole world.

RS: As we transitioned into cloud-based software, what was the impact that you first saw?

RD: For me, it was really personal because we were right on the cutting edge of technology. I remember when we started our own software company we put our email server in and we email addresses, which was quite exciting. Just that first bit of power that you can communicate instantly with anybody in the world was kind of neat.

I’ve had three or four businesses in the past. When I did Xero, we started it when I was forty, and though I don’t really want to be tied to living in one location. I think at a very personal level, when we designed Xero a few of the senior people said, “But we really want to live where we choose to live.” We all had young children and were thinking about schools and wanted the provincial lifestyle that we grew up with.

We designed our business really to be distributed from day one. We have now twenty offices all over the world, Denver, Milton Keynes, London, New York, Seattle, Melbourne, Brisbane, Perth, Sydney, Auckland, Wellington. We’ve got all of these offices, and actually, it’s not just that the team is distributed. Our C-level team of executives is spread across the US, New Zealand, and Australia. We’ve got senior people in the team up in the UK as well.

We’ve had to design a business around being globally distributed. I think if you aspire to do something which is truly global and truly world class the odds are that you probably won’t get all of the talent you need in Australia or New Zealand so you have to take the best global talent. It is a very different way of working. We’re not all around the same water cooler every day.

RS: That's a huge benefit, having a distributed workplace. With that there’s obviously a lot of challenges as well. What are some of the challenges that you’ve had to overcome having and using a distributed work environment?

RD: There’s no substitute for face time. What we do at the C-level is make sure we have plenty of good time together. We have a board meeting every three months. As well as me and the board, we get all of the C-level team together so we at least get together every three months.

We try to not go more than four to six weeks without spending time in person. What’s really interesting is that we’re a pretty flat team. We don’t have any PAs or any of that sort of support at Xero. We’ll do our own work and we’re all available twenty-four/seven, except when you’re sleeping, of course. You have your phones on from first thing in the morning to last thing at night and we all get back to each other pretty quickly.

I think you’re either of a working style where you are available all of that time, and work isn’t something that you just turn off. It’s something you do all the time and you really enjoy it. Also, I think having the technology which allows you to support that. Some people will say, “But I actually want my down time.” That's fine. When I’m at home I go for a swim and I ride my bike, but when I get back on I respond quickly to my messages and all of those things. It gives you this freedom to have, I think, a really good lifestyle, be a good parent, but still do something which is big and global.

JVD: What about when it comes to actually managing those teams and I guess when you’re running your own small business, managing your small business? How does the management style that you need to run a distributed team differ from I guess your traditional style, where everybody is in the same office all the time?

RD: Well, we don’t really think of our … and certainly think as myself as a manager. I’m more of a founder evangelist that drove these things forward. Then in our senior team, we like having a good sense of diversity of style across that team. You want to hire people that do the bits that you don’t do. Normally the founder evangelist is great at charging forward, but gets bored with a lot of the operational stuff that has to happen just to keep things moving.

What I’ve done is build a team which carves up the traditional C roles into what people are good at, and we use our communication. Rather than having a deep hierarchy, we know what needs to be done. The senior team works together as a virtual senior team and we communicate with what we do. We help each other out with problems. We let each know what we’re doing, but we don’t really manage them in the traditional way. We expect senior people are actually driving their own businesses forward.

RS: I think a few rungs down, one of the big things, and I think for small business as well, what I’ve seen is it really respects the individual. It says “We trust you. Okay, you may be external and we may not see you day-to-day, but you’re there to do your job and you’ve got ownership of it. I think that really incentivises people to go out there and give the market and their clients the best of themselves.

JVD: I guess too, it changes the way you hire people because you’re really hiring based on a set of attributes rather than a really specific hierarchical approach.

Are we seeing companies, broadly speaking, shift into an outcomes focused rather than that bit more traditional approach of actually seeing people and measuring the time they’re spending? Are we seeing the focus shift from time to outcomes?

RD: I hope so. I think in our own business we are. What we’ve tried to do is not hide that everyone is trying to be a parent and be good to their families and do all of those sort of things while we’re doing this big business. When we started the business we had a whole lot of young single people. Over the last nine or ten years a whole of them got married and they have kids. They still want to do some exercise and all those things. These are just the truths of when you’re trying to live.

I get so excited when I see one of our staff shoot a photo on a Tuesday from the chairlift of a bluebird day, because if they’ve worked really hard the prize should be you should feel no guilt about being there where the mountain’s on, and showing all of your friends. I love that because it just gives us confidence that I work so hard that it’s completely okay to do this, be there for your kid’s sports days and all of those things. I think if you acknowledge that with work you’re trying to balance all of those other things, and genuinely make it available for people to do those things well, you get some much loyalty. You just do become very outcomes focused.

These sort of businesses, you can’t hide from poor performance. Very quickly, if you’re not driving the things forward, not delivering outcomes, not communicating with your peers, your peers work it out and we hear quite quickly and they get managed out of the business.

There are a whole lot of challenges. Something we do have to have hard conversations with people that can’t work in that way. You do need to be very cautious and deal with people that don’t fit that culture quite quickly, because one person can ruin the culture for a much wider group.

JVD: What is it meaning for businesses that are coming out of Australia and coming out of New Zealand in terms of their opportunities to expand globally?

RS: Yeah, it’s really interesting coming from a very small country with only four million people. We’re talking about New Zealand. We’re the country that’s furthest away from everywhere else.

Technology is meaning that we can now basically communicate with anybody in the world.

I think it’s quite an intoxicating concept of having all of the lifestyle benefits of living in Australia or New Zealand, yet doing something which is truly global and earning your income globally. Whenever I go and see accounting practices I say to them, “So, what’s your export target this year, thirty percent?” They look at you and go, “Exporting what? I can see all my customers. They’re outside the window. You can see the buildings where they all are.” Even services businesses now can export.

I think all business people need to be thinking about how they earn that export dollar and get part of the global supply chain and drag money back into their community.

JVD: Now, we talked initially I guess about the managerial shift between running a team that you can see around you and running a team that works effectively remotely at all times. Is this the next shift in thinking that we really need to adopt, shifting into a global focus, rather than a national focus?

RD: Yeah, absolutely, and the evidence of it is hiding in plain sight. We’ve seen Netflix globalising TV. WhatsApp is globalising text messaging and calls. Uber is globalising taxis and we’re seeing this massive regulatory fight going on between that. Apple is globalising music and all sorts of things. The evidence of this globalisation is absolutely taking place with the services that we’re using on our phones today. There’s no question that it’s happening.

It was really interesting, some of the things I’ve seen happen more and more in the US is that people are now consuming services over the cloud as well. They’re posting quite complex jobs up onto the web, and basically going out into this global workforce, getting quotes for a few hundred dollars to get something that might have cost a few thousand dollars to do.

For example, one of our investors likes doing calls and they like talking all about partners so they know exactly how we’re doing. They wanted to get our directory off our website. It would have taken them a graduate who they probably pay a thousand dollars a day to fully load it, two or three days to get that done. Put that job up on the web, got it done for three hundred bucks in twenty-four hours.

I think services businesses had been the last one to export, and we’re even seeing globalisation happening in that space as well. That's super interesting for the accounting profession, and also for service based businesses.

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Promo

JVD: You know, if you've got questions following any of these shows, you can find us on Twitter at Xero In and you can use the hashtag #XeroIn to ask us anything you'd like. We'll answer it on the show.

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RS: Shifting the lens, Rod, if we were to zero in from the perspective of the small business, the concept of a distributed work force and having cloud-based technologies to leverage that is a great idea; we all agree on that. However, it doesn't necessarily make it right. Can you think of maybe a basic checklist for small business owners and leaders out there to work out whether their distributed team is the right fit for their business?

RD: Yes, it’s a very hard and good question, Rob. The sort of things that we think about, if you’re a service based business one of the issues is access to talent. There’s such a massive opportunity in returning mums, who want to get back into work, very smart people, great with organising time, but they want to be picking the kids up at three o’clock. We also know that small businesses do their work after seven, eight o’clock at night, once the kids have gone to bed.

It seems there’s massive opportunities around getting a virtual workforce that you can operate with that actually operates in the time zone of your actual customers doing their work. That’s one example I think of can you extend your workforce, can you get valuable talent by using technology to have really qualified people come and work with you on a more casual basis, which may mean they operate virtually or on a part time basis.

I think the next thing is have you got the basic infrastructure in place? Small business owners should be made aware of things like Google apps and Google hangouts, tools like Yammer, like Slack, all of the cloud suite of tools which give small businesses the same productivity tools that large enterprises have. I think being able to have people collaborating on things online and communicating online is a hugely different way of thinking, and people are already doing that. They’re assembling these virtual teams and being able to manage that using all this very, very low cost technology.

RS: Rod, what is the importance of using an internal communication platform such as Yammer or Slack, to name a few?

RD: Yeah, it’s absolutely fundamental to the way that you talk. The difference is that conversations aren’t happening privately in email. These conversations are happening in an open environment that everybody can see. Part of the openness and this ownership we talk about is facilitated by these tools, where you want as least email happening as possible, because that’s very one-to-one or one to a small number group and it quickly goes off target to these open conversations that somebody later can come in and see all of the expertise that’s happened inside the business.

I think what was called Grouper in the old days, those internal social networking packages are absolutely fundamental to this new style of trusting work where there’s real ownership given out to your teams.

JVD: Do you still get surprised occasionally by the smaller companies that have started up in unusual places and are really, really disrupting some larger business models? What are some of the really exciting I guess entrepreneurial stories that you’ve come across recently where people are having a go from where they happen to be?

RD: Well, I think the obviously one that’s big for us all at the moment in this part of the world is Atlassian, a completely different sales model getting into the enterprise, and when they listed, they listed as a six billion dollar company. That's a real milestone one because it’s showing that we’re building world class businesses outside of Silicon Valley. Like Xero, Atlassian has people in the US, but there’s no doubt that’s an Australian company. They’ve done it their own way with their own style.

What that shows us is we actually don’t have to do the playbook of let’s create a little business from Australia or New Zealand then fold it in so it looks like a US business. We can actually build really good global companies from our part of the world. I think a massive milestone and huge congrats to what Scott and Mike have achieved because it gives a whole lot of people some real confidence. You’re seeing the Campaign Monitors, Invoice2Go, a bunch of other little companies like that who are attracting world class funding and building significant businesses from our part of the world.

JVD: Tell me, what’s the next step for you and for Xero? Where would you like to see and where do you see the cloud and technology changes taking you over the next twelve to eighteen months?

RD: The exciting thing about Xero is it’s a really big investment, so there’s a large moat around our business. It’s a couple of hundred million dollars of investment to go and build this very broad platform that pretty much any small business in the world can use. Because business software, there’s just lots of functionality to write and then purchase orders and boring stuff like that, it just does take years to build it. Now we’re largely through that. We’ve always got work to do but largely now, cloud accounting software is as good, if not much better, than the desktop equivalent.

Now we can start doing some really fun stuff. For us, we’re really excited about things like machine learning. We processed over three hundred billion dollars of transactions last year. We know how people code things. If we don’t know how you coded something we know how somebody else coded a transaction from that same vendor. What we’ll be able to do over the next year is really use that data to save small business owners so much time to look for patterns and to really drive it to management by exception.

You’ve seen those future videos where the guy or girl, they get out of their bed and they go and have a shower. They clear the mirror and the mirror starts telling them what the weather is, and here’s some news. It will also be ten thousand dollars came into your bank account last night. We paid the bills. This person here needs a phone call from you, to get their money. It’s Joe’s birthday coming up. He’s been with us for three years.

All of that stuff we know from the data. I think that accounting software for small business gets really exciting over the next few years because the servers become smart. The servers will be doing a whole lot of work while you’re sleeping, and you accounting software will become a partner that drives much better outcomes, even finds you business leads. Our team if really fired up about that, and having spent nine years doing the boring hard heavy lifting stuff, that’s a really cool phase to get into.

RS: What about a wider glimpse into the future, Rod? How would you like to see the cloud impact distributed teams, and how do you think it may play out, regardless of how you would like it to play out?

RD: I just love that you get this productivity benefit, but you also get personal freedom back that you can be a good parent, that you can be at the sports day. I’m still working from the beach and coming in and doing a few days. I love going for a surf and then going back into the home office and doing some calls to New York or San Francisco, then going back out for a wave or going for a swim. I just think the technology allows us to have all of that and you can do really exciting jobs that you’re passionate about, that are absolutely world class, and do conferences where you meet the best people in the world, and have this awesome lifestyle that is available to us in our countries.

I think technology isn’t this big scary thing. It’s a tool which allows us to live far better lives and do purposeful global things.

RS: Do you envisage a future where there could be a regional diaspora as a result of all this technology?

RD: I think we’re seeing it now. We’ve got people all over. We’ve got over thirteen hundred people now all over the world. Everyone loves where they come from so everyone thinks they come from the best place because I think that is what you know. I certainly remember when I was young growing up and you couldn't buy anything in New Zealand. You had three or four shops. Now, with Amazon have globalized retail, you can get anything you want in the world within three or four days.

The place that’s special to you, you can work from. It may mean that we seem some really crowded surf breaks though, so maybe that’s not so good.

JVD: We might even see Sydney house prices come down. That would be good, maybe.

RD: Yeah, but it’s interesting, though. The house price thing is interesting. It’s a big deal in Auckland at the moment as well as it is in Sydney. What we’re seeing, actually, and we should be proud that each of our countries have these fantastic global cities that people want to move in to. The lifestyle is so good compared to some parts of Asia. What that does mean is I think it makes it more compelling to be able to live somewhere just out and be connected to it.

I actually drove up to Newcastle, two hours out of Sydney about four weeks ago, and what a cool place; beautiful Victorian homes overlooking the water, funky cafes and food, and great waves, awesome lifestyle, two hours out of Sydney. A thriving Xero community there and it’s a similar sort of set up to what I have in Hawkes Bay in New Zealand. I think it’s so exciting that we can still have a connection to the big cities, but you can have this lifestyle we used to dream about where the kids can ride their bikes to school, everyone knows your name in the café and all that sort of stuff, while still do things that are global. Technology allows us to do that. It’s pretty special.

JVD: A lovely vision, I guess, of a future where we have so much more flexibility around being whole people at work, being parents, being fit, being active, being engaged in the community.

RS: Yeah, performance and productivity not just in the workplace, but in every aspect of one’s life, it’s huge. I’ve got a weird vision where … Do you remember in France, I think it was around the eighteenth century where you had the café society. I can see a world where office space plummets in value, the rent per square meter, and in fact, we have all these cafes with little rooms and whatnot springing up everywhere. People can just be on the road, pop in to these, and having these, almost like very organic meeting spaces dotted around each of the countries. Maybe not in my lifetime but I think it will come one day.

JVD: Some of them should also be maybe seaside shacks where you can put down your surf board and sit down and have a chat, and then go out and take another break.

Do you know what I love about that is we’ve all heard of FTTN, which is fibre to the node, and FTTP, which is fibre to the premises. Now we can talk about FTTB, fibre to the beaches.

RD: Yeah, absolutely, you’ve got to get that fiber to the beach. It’s not binary. It’s actually in different parts of your life you want different things. When we started Xero we were all in Wellington. I said, “Why don’t we just do Xero in the Hawkes Bay?” Everyone said, ‘No, no, no, we want to be with other twenty year olds.” Now that a lot of our people are in their thirties and have children they’re like, “Hey Rod, how about getting that office going in the Hawkes Bay?

I think it comes with time of life as well. I turn fifty next birthday and the combination of the living in the provinces a few days a week, and the big cities and travelling around meeting great people is such an exciting mix. I think you enjoy both parts of it. It makes you appreciate what you have, a much more simpler life. You really appreciate, also, the stimulation of being with other really smart people when you’re travelling around the big cities and all of that energy that happens, and then take it back and actually do some real work. Yeah, it’s good fun.

RS: It is good fun, thanks Rod. We appreciate your time

JVD: Thanks so much for joining us on Xero In.

RD: Thank you very much.

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JVD: You know what was really interesting about that conversation is the number of times he referred to his family and how important it was that people can be part of their family, and keep fit and can be actually a whole person in business. It’s great to see such a senior business manager, a founder of such a big company, actually wanting to be actively engaged in their company and their family, actually wanting to be actively engaged with their family, and making it part of what the business is.

 

RS: I agree, and that leadership needs to be top down, so other people have the courage to go, “I want to balance life as well. I can be productive and give it all during my work hours, but then at the same time really look after and enjoy that family life as well.”

JVD: Yeah, and catch a break and catch some waves and do what it is that makes them human.

RS: A bluebird day out on the ski fields, beautiful.

What I found really interesting about having a distributed workforce empowered by the cloud is the virtuous cycle that creates, so you do have a more outcome focused culture with all the employees. Then at the same time it gives them the autonomy and ownership to then drive the results as well.

JVD: Yeah, so you’re measuring success in outcomes, not hours.

RS: … And obviously, a far wider and deeper pool of talent. Then also why not redefine your own marketplace?

JVD: Yeah, why not? Why not go overseas? Why not take what you do to the world?

RS: I like it. If you have any questions you’d like answered on the show come and join us on Twitter @Xero In, or alternatively use #Xero In.

JVD: If you enjoyed today’s podcast make sure you also subscribe on iTunes. The link is on today’s show notes.

RS: Thanks for joining us.

JVD: Thanks for listening.

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