Creating beautiful software takes time. And that’s exactly what Xero has been doing over the past 10 years, designing a global accounting platform that is simple yet comprehensive; all with the user’s workflow and end purpose in mind.
The cloud accounting landscape has been transformed into a highly competitive market by these core principles which Xero maintains. They’re something that we’ve upheld from day dot.
Xero Founder and CEO, Rod Drury, recently revealed to Insightful Accountant the story behind how Xero came to be and how we’ve been making accounting magical ever since.
As an Auditor turned Junior It Consultant in the early ‘90s at what would later be known as EY, Rod was immersed in a hotbed of innovation in information engineering; implementing many financial systems in his time with the accounting giant.
As his time at EY progressed, Rod founded a software development practice within the company; later peeling out into another firm. All the while continuing to develop a passion for accounting and programming.
“I loved accounting and programming, and always had a dream of building the world’s best accounting engine,” Rod said.
“It was actually back at high school where I first learned accounting and programming. My favorite subjects. The mathematical beauty and elegance of the double entry accounting system had an appeal to me. Programming unlocked your brain to build machines with the ultimate scale.”
Rod went on to develop a relational double entry accounting system in his home office. This came in between growing his consulting and development practice, beta testing some of Microsoft’s early web-based programming tools and building and selling a successful email archiving startup, AfterMail.
Rod couldn’t shake the revelation that accounting online would be highly interactive, with every number clickable; blurring the line between reporting and the task user interface. Running and selling his own business gave him insight into just how clunky traditional accounting software was, and after his money arrived from the sale of AfterMail the founding Xero team set out to develop a cloud accounting platform with the first multi-perspective general ledger. And the rest is history.
Solving accountants’ biggest pain points
After addressing some of the biggest problems with accounting over the last 10 years, Xero continues to look at some of the next big challenges. A lot of these challenges we are able to identify by looking at the data collected by our general ledger in the cloud. Hundreds of thousands of businesses’ transactions are added here every day.
Rod cited the launch of Xero’s Find & Recode as an instance where we’ve been able to leverage this data set to extract insights about the patterns of small business owners.
“When we looked at the data, we could see more than 3,000,000 re-coded transactions and clear patterns of errors made by small business owners that their advisors had to fix,” Rod shared.
“Surprise, when coding invoices to the revenue accountants most people just selected the first account – sales.”
Analyzing general expenses re-codes, we uncovered a large amount moved from invoices; costs had been coded in as revenue. Rod says this data led to a new way of doing things.
“Using this data and trying a number of Machine Learning models on our vast dataset – there were more than $1 trillion of transactions processed during 2016 alone – we established that after about four invoices, we got a very high hit rate on selecting the right account code for a transaction,” Rod said.
“For our daily bank reconciliation – we process over a half billion lines a year – we could correctly code nine out of 10 transactions.”
Starting with double entry accounting and journeying through to Machine Learning magic, Xero has come a long way; eliminating some of the biggest problems in accounting.
You can read the insightful accountant article here.