Another good milestone over the weekend as we ticked over 20,000 businesses on Xero. You can read our market announcement here.
Last year we could see that we were making good progress with our accountants channel so we made a strategic decision to really focus on the recruitment of accounting firms. While there are a lot of accounting products out there, in reality there are only a small number of products that accountants recommend and support. Some early research we did with Ernst and Young showed that if a small business used an accountant, in 80% of cases the accountant chose the software. We had to be one of those.It’s expensive to develop a channel. We have people on the road and largely use an event based model for recruitment to make it scalable. We are very pleased that the strategy is working and we’ve been able to maintain great growth rates as we build relationships with accounting firms. We now have over 1000 firms with Xero customers. This gives us a substantial base of potential customers to sell into.
We are also starting to see some nice disruption occurring with cloud based solutions. The first disruption was having a single ledger that reduces the cost of sending data between accountant and customer. The $200-500 in fees just to get the data has trained small businesses not to use their accountant for management advice. It’s fantastic to see accountants taking advantage of being connected and really becoming the trusted advisor that small businesses want.
The second disruption we’re starting to see is client-side and accountant-side products coming together. Under the desktop model a small business buys its own software, and the accounting firm buys some very expensive final accounts and practice management software to reprocess the books. With a single ledger that goes away. As the ledger has already been paid for, turning off accountant-side software cost is compelling, especially as these are set to increase for the desktop software model. Some of the established software products for accountants will require upgrades to server hardware, including running their own SQL databases which accounting firms need to pay for and maintain. Right now we haven’t totally replaced the accountant-side features but we’re getting there and are committed to ensuring our partners continue to benefit from joining the SaaS movement. So we see 2011/12 as a big period of change for practices.
Our strategy has been to build out both sides. Client and Accountant. We’ve never thought that online accounting was just desktop accounting moving to the web. Accounting has a broad minimum feature set. It takes a big team and time, and that’s expensive. This is why we went down the route of raising money as a public company to have the resources and time to pull these two sides together concurrently.
We are also seeing new industry groups evolving in the ecosystem. Bookkeepers and Virtual Assistants are able to provide new services to small businesses at a price point that makes it compelling. Business owners can focus on what they do best, and get a hand with the admin. Because they’re on the same ledger we’re seeing Accountants and Bookkeepers working together productively.
Thank you to our customers and partners for your support. We have a lot to do, but we have no doubt that it’s working. Let us know your thoughts.