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UK Government abolishes medium-sized businesses

Posted 8 years ago in Xero news by Gary Turner
Posted by Gary Turner

I am nurturing a personal theory about business which in short says that medium-sized businesses will become extinct, overtaken and then usurped by a growing breed of super-agile, better informed, more capable and more competitive small businesses.

Until today my proto-theory stood precariously on three principles (and some of them are admittedly hunches).

I think Osborne’s budget today just gave my theory a fourth leg.

  1. The prospect of likely though as yet unconfirmed swathes of reporting and regulatory relaxation for small businesses in coming years, saving both small businesses AND the government lots of money – the latter being the clincher.
  2. Improved access to more affordable and better business management technologies, like -cough- Xero, which provide small businesses with on-demand access to instant and scalable infrastructure, up-to-the-minute operational visibility (with their financial advisors and virtual CFOs on their shoulders) and tons of operating efficiency – UNLIKE medium-sized businesses still running 20+ year old ERP apps whose gnarled roots are so deeply embedded in their processes and operations that their removal fundamentally risks harming the business, or at best will cost thousands to mitigate and years to execute – hence it gets deferred and the roots get to run even deeper, ability to execute all but evaporates.
  3. The fact that you used to need large chunks of capital to run a medium-sized business, what with all the traditional communications, sales and distribution networks such businesses required to trade, often as mid-supply chain intermediaries. In 2010 you don’t need the same amount of capital nor does the supply chain need lumbering intermediaries whose existence has more to do with tradition than expedience.
  4. George Osborne’s newly announced ‘think small first’ fiscal support package for startups and small businesses; lower Corporation Tax, NI breaks for startups and Capital Gains relief for small business owners.

I’d say it’s a done deal.


June 23, 2010 at 3.09 pm

Odd that the company without middle tier product is happy to proclaim the sector dead. I don’t really follow the logic that says because building a small business is easier, medium business will disappear. Mid tier companies perform many essential roles within the economy and have the added bonus of generally co-existing with each other in a diverse market without transforming it into an olig/mon-opoly type situation, while still providing the staying power, national/international support presence and many of the other lovely midsize benefits!

Gary Turner Xero
June 23, 2010 at 7.00 pm

Brad – of course I was extending my flimsy logic, tongue in cheek, a bit farther than the facts might have otherwise permitted.


My personal experience of the UK mid-size space (by which I mean businesses employing generally between than 30-200 employees, or the Ms in SME) is..

1. No single (big) players (Sage, SAP, Microsoft) have shown or can demonstrate any future signs of succeeding with mid-sized companies in a really material way – low double digit (or even single digit) percentile market share doesn’t convince the boards of software companies to unlock genuine innovation investment to replace/overhaul old products. That harms the mid-sized community who get stuck with generationally old technology that’s, at best, lightly sprinkled with contemporary complimentary tech around the edges. That results in a market that’s pretty fragmented with a large consulting component required to route around complexity which abounds in medium sized businesses but which is nowhere near as prevalent in small businesses.

2. The medium sized manufacturing sector has been hammered in the last ten years by overseas competition. While UK labour rates are a big part of that, those businesses could not respond (other than outsourcing their manufacturing themselves) in any meaningful way. In my mind that suggests the medium-sized service industry businesses might also struggle when faced with new (on-shore) competition from smaller, more able competitors.

June 24, 2010 at 7.53 pm

I do see your reasoning.

With that, out dated IT infrastructure is something that sits comfortably in both large and small enterprises, traditionally due reluctance towered change, cost, complexity or because it is not seen as being of any financial or operational benefit. One might argue that the only reason this does not occur to the same extent in the small business market is because of the sales, almost subscription, model that the major vendors in this space use. Another may be because the system is often exceeded in scope (an issue that now Xero is vulnerable to, but later where the API may save you), or that the system was never given proper attention to initially (what with all the fame and glory of a small startup!).

I am acutely aware of the dealings if the three vendors you listed, and know that to 1 or 2 of them the mid market is absolutely everything. While manufacturing may be an increasingly offshore activity, this creates a larger requirement for sophisticated and integrated distribution and inventory management systems then ever before.

Just my 2 foot foresight….

Gary Turner Xero
June 24, 2010 at 10.14 pm

Thanks for the comment, Brad.

We’re very sensitive to the risk that a simple, tightly defined product today can develop functional affectations over time which renders it too complex and costly for what was once its core market. Sage 50 in the UK is a great case study example for that kind of bloat-over-time effect.

I think Steve Jobs put it perfectly earlier this month – which Rod blogged here – when he said that designing great products is as much about what you put in as what you choose to leave out. The simplistic functionality arms race mentality was the only way for an adolescent software industry to operate and compete 20 years ago (and remains as an important gravy train for ongoing annual maintenance revenues for those vendors) and leaves us with a set overcooked legacy products like Sage and MYOB straining under the weight of their own functional richness (which is politically correct marketing-speak for girth), whereas today it’s all about precisely focussed innovation and refinement and those are key themes for Xero.

As for your note about the mid-market being everything to those big players; I would agree from their vendor standpoint, but I would append that with the feeling in the market is not being fully reciprocated. It’s a dog’s dinner.

June 25, 2010 at 12.38 pm

Yes feature creep slowly kills everything. This is why I believe the API is so valuable to you and why tighter integration with it could really benefit you long term. Even just developing your internal products with the API mindset could be a way to stave off “girth”. I do believe it is a tactical error to not offer homebrand inventory management and payroll systems, as well as all those other niceties that modern accounting packages have come to be loved for. Not that I know your tactics that is, more that it is something that I desire and know is desired by others.

While experience is considered absolutely essential to loved products, you do not develop consumer software. Yes elegance is an advantage, but insufficiencies eventually do catch up to and overlap a simple to use interface. Steve Jobs is a pretty snazy CEO, and his design team are world class, but they also make many errors following the simplicity path and are still struggling in a large portion of the business community today (an issue that appears to be very slowly going away). Xero is currently in a unique position, take inspiration but don’t copy, it won’t work in the long run.

Judging by some other posts on the blog, you guys have developed a culture wherein you believe the traditional ERP/Accounting companies are inept. I can see how that idea could be formed, they have lagged in getting onto the web (generally due to the complexity of their existing codebase) and often they make huge tactical errors (beliiiieve me). While your pool is pretty quiet right now, don’t think that you own it just yet, Sage, SAP and even dear little Microsoft have the people, knowledge, customer base, partner network, funding and international presence to absolutely dominate when their time comes. I believe Xero can do it, but it can’t think that the war has already been one.

Steve Shepherd
July 25, 2010 at 10.09 pm

I have designed software for 20 years and the biggest thing with software vendors who have a client base is they get trapped into feature explosion.
Often without going through a proper assessment of how it should be implemented and in what form.
I have taken the approach of usage experts like who talk about delivering solutions that are easy for the day to day tasks, remove the clutter of the weekly or irregular tasks and many times forget about the nice to have stuff.
This gives users the feeling that there job is quicker and much more fun as it doesn’t take 10 clicks and five mouse slides and then 14 key presses to get a simple job done that they do every day or hour.
This takes goal oriented design and is a lot longer process.
For example a goal might be to travel from auckland to wellington.
In 1890 the trip was done on a horse or boat and took a number of days.
In 1980 the trip was by plane and took a couple of hours.
The goal was the same the way it was done was different.
To many times software companies just focus on the plane or boat or horse and not what the actual goal is.
Just my two cents worth.

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