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Episode 47: Tesla paves road for small biz innovation

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All Xero Gravity episodes

Hosted by Elizabeth Ü

“Who would have thought that cars, that the car field, would have been disrupted so quickly?” That’s Rod Drury, on one of many reasons he admires Tesla CEO Elon Musk.

As the founder of Xero, the global accounting software company with customers in 180 countries, Rod knows all about the importance of thinking globally. A Hi-Tech New Zealand Entrepreneur of the Year winner and stand up paddleboard enthusiast, he joins Elizabeth Ü in studio to discuss the parallels between Tesla’s plan to make the world better, and how small businesses can innovate and grow beyond their community.

“Imagine being on the board of Porsche or Mercedes Benz or Ford, and you see this Tesla thing going on. This little startup that gets 400,000 forward orders.” That’s just a hint of
Rod’s entrepreneurial fire you’ll witness on Xero Gravity #47.

Small Business Resources:

Episode transcript

Host: Elizabeth Ü [EÜ]
Guest: Rod Drury [RD]

EÜ: Howdy everyone. I’m Elizabeth Ü, and you’ve just tuned in to Xero Gravity.

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Guest soundbite

“I think what will happen over the next sort of 5 to 10 years is that there’ll be a few people that kind of manufacture that base skateboard, the plane, the batteries, the engines, and then the car, which has really become the aluminum that goes on top. That becomes the brand.”

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EÜ: Meet Rod Drury. He’s the founder and CEO of Xero. He’s won many awards including the Hi-Tech New Zealand Entrepreneur of the Year Award, a few times in a row.

Rod joins us in the studio today, which is super exciting. And he’s about to get pretty evangelical about electric car company Tesla and its CEO Elon Musk.

Tesla is doing a remarkable job at disrupting the consumer vehicle industry. Its mission is to offer electric cars at prices that the average consumer — that’s you and me — can afford.

Rod points to many lessons small businesses and entrepreneurs can take away from Elon Musk and Tesla, including the importance of thinking global when it comes to doing business.

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Guest soundbite

“It’s really exciting for small businesses, you know, anyone in the services industry, because exporting used to be about manufactured goods. Now we can use all of this great technology to export and to do commerce, all over the world.”

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EÜ: We’re going to hear more about this, and Tesla’s recently announced Model 3 on Xero Gravity, right after this.

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EÜ: Rod Drury — thanks for joining us in the studio here in San Francisco.

RD: Hey Elizabeth, good to see you.

EÜ: Tell us more about what you’ve been up to outside the office?

RD: So I’ve got three young kids. I’m traveling so much, when I get home I’m home, but I like to swim. So most days I jump in the pool and try to get do a thousand meters. I live right at the bottom of a big hill. So if I’m home I try to get my mountain bike up there, and I really live for stand up paddle boarding. That’s my favorite board sport at the moment.

EÜ: Oh that sounds super exciting! I’d love to hear a little bit more about your journey of becoming CEO of Xero, how did it all come about?

RD: Well, we’ve been doing this a while now. It’s just kind of crazy, where we just had our first staff member, Craig Walker, celebrate his 10th year at Xero. It’s so fast, like it wasn’t that long ago we were four or five people in an apartment in Wellington, writing the first lines of code. And you know now I think we’re up to about 1,500 people. So you know I think we just saw this huge opportunity: small business is the engine room of all economies and you know when we started this they didn’t have great technology. So we kind of spotted it, you know, maybe opportunity 12 or 13 years ago, and you know, working pretty hard for the last 9 to 10 years.

EÜ: And was there a particular person or moment in your career, along those last
13 years, that really helped you get to where you are now?

RD: I think coming from a small set of rocks in the South Pacific, we didn’t have a whole lot of those people, so you know I kind of read all of the Silicon Valley books and did that. And I love the tech industry. And the thought that you could build something that sells while you’re sleeping has always been really exciting. And doing something truly global. So it’s really mainly from books. And you know I read all the technology blogs and those things, and I follow all of the heroes. You know, at the moment, it’s just fascinating watching what Elon Musk is doing. In the same week he launches the Model 3, which has 400,000 orders now, he then backed a space ship onto a boat. So pretty huge.

EÜ: Is there a particular person or a moment in your career that helped to get you where you are now? You know, either gave you a kick in the behind, or was really a personal inspiration to you?

RD: Well, you know, the example I had was actually when I was back at school, at Napier Boys High School, and I started playing with computers for the first time. We had a fantastic teacher called Bob McCaw who got a whole lot of us boys into technology. This is when Apple II computers came out. And I remember you know, being able to do my first computer program, and get this machine to do things for me, which was really one of those life-changing moments.

But in New Zealand there wasn’t a whole lot of people to go and follow, so it really was reading the books and I think being outside of the US. You do have a bit of a chip on your shoulder trying to prove that you can do things as good as anyone else in the world. So that’s been a real drive for me, and the last sort of— especially the last five or six years at Xero — when we’ve spent a lot of time up here. And I spent a lot of time up here before Xero. You are meeting some of the leaders of the industry and it’s just super exciting, and you take inspiration from all of them.

EÜ: Yeah, I love that story about the teacher back in the day. I’m sure he’s quite proud of you now?

RD: Yeah, and he sends me emails every so often, so it’s nice.

EÜ: It’s time to dig a little deeper into today’s episode, which is how Tesla is paving the road for small business innovation.

Now Tesla Motors announced Model 3 in March this year, and the vehicle itself isn’t available until 2017. I understand they’ve already received some 400,000 preorders for the car, which is worth about $35,000 US. How soon after the announcement did you respond?

RD: So you know I’ve been trying to get a Tesla for ages. They’ve been in the US for a while; Australia opened up last year, and just two or three days ago they opened up New Zealand. So I just finally ordered the Model X — I’m excited about that. And I just flew up to San Francisco from Auckland yesterday, and then straight down to a friend’s place in Menlo Park. So you know, spent the afternoon yesterday driving around in his P90D Model X, brand new, which was mind blowing to say the least.

EÜ: You’re clearly a bit of a Tesla fan! So the preorder announcement must have been quite exciting for you.

RD: Yeah, so I think we all watched the Model 3 announcement. It’s been really interesting. I loved watching the big technology keynotes, and the keynotes from Apple were always kind of like the standard. But there hasn’t been that many exciting products lately, and so I’ve sort of been watching the Elon Musk keynotes. And it was just amazing watching what they did with the Model 3 and then seeing over the course of you know, two weeks since then, 400,000 orders. I think this is just really cool. They pretty much had their iPhone moment with the Tesla Model 3. And there were a few really neat things: one was they’re starting to leverage the fact that they don’t have to have engines. So while they’ve done a really beautiful and evolutionary form factor, they’ve built a small car, but with a very big cabin. And the way that they’ve reinvented the dashboard experience with a computer. And I imagine, there’ll be a heads up display, you know, where everyone was thinking, “How is he going to build a car for $35,000?” But they’ve really thought about it, and that was one of the things that I noticed when I was driving the Model X yesterday — how they’ve really taken a design-led approach, and just built a beautiful customer experience.

So for example, when you get in the car you can set yourself up as a new driver. When you take possession of the car and you connect your remote control, it can program in your garage door opener and the gate opener, and it just creates this magical experience when you drive and the gates open and the garage door opens. I mean really obvious things that haven’t been done. And having software people coming into the car industry and taking a real design-led approach, I think it really, it resonates for businesses like ourselves, which are also very much design led. And trying to recreate these magical experiences, and seeing it done in hardware with a car was special yesterday.

EÜ: Now the fact that Teslas are even available in New Zealand where you live, is a testament to the global approach that this company has chosen. What do you think this says about how the world of business is changing, and not just for car companies?

RD: Yeah, so we see this very much when you live outside of the US. So you know we have a big presence in Australia, the UK and obviously here in the US. And we’re actually seeing the globalization of everything at the moment. So you know, Uber is globalizing taxis. Netflix is globalizing TV, Whatsapp is globalizing Telco. Amazon is globalizing retail, and it just goes on and on and on. And even Tesla now is a global car company. And I think this is what we’re seeing, that these platforms are starting to emerge, and the scale of them is quite amazing. Like I saw an article in the last two weeks that Uber was ordering 100,000 Mercedes Benz S classes.

So the scale of the disruption that’s going on is absolutely mind blowing. And getting to global scale, the technology industry seems to be really important. And it’s interesting because a lot of software companies originated through the US, and then saw the rest of the world as you know, just international. What we’re seeing in our business — we have customers now in 180 countries – is seeing the amount of people who are exporting, using other technology.

So it’s really exciting for small businesses, and for anyone in the services industry, because exporting used to be about manufactured goods. Now we can use all of this great technology to export and to do commerce, all over the world. And it’s exciting watching on our own platform — you know we’ve got accountants in Australia, providing services up to the UK, up into the US, people in the US helping other businesses move up here. It’s really interesting.

EÜ: What do you think are some of the ways that we can really take advantage of this globalized approach to doing business?

RD: Yeah, so this globalization of services — and we’re seeing at the very low end, sites like Fiver, where you can go and get a whole lot of branding work done — you basically put your job up and there’s a reverse auction, people bidding to do that work. That’s at the low end. But you know we have good examples if we compare labor rates in Australia and New Zealand. We see those sort of same jobs: a New Zealand worker is less than 60% of the cost of an Australian worker, as an example. We’re now seeing traditional services businesses using these global platforms, and things like Google hangouts and Skype to go and pitch work in other countries, and are obviously creating very profitable businesses. And you know in a business like ours with staff all over the world, you can really take a chocolate out of every box. You can be in big markets, you can live in a small country, you can travel and work. So for small businesses we are seeing this. They are now part of the global economy and you know, that’s incredibly exciting because it’s not just that you’re earning export dollars or you’re just earning more money, you’re actually living an incredibly interesting life because you’re talking to people in a bunch of different countries. And often in the industry you’re in, there’s like the authoritative global conference, and with everyone being connected on Facebook and Twitter and those things, you’re actually building these international friendships that are really quite special. And we certainly see quite a lot of that in our own community.

EÜ: I love that Tesla is really disrupting an entire industry, and it’s obviously not just about cars. I mean they’re doing wireless firmware updates, even letting third party companies develop apps for them. What do you think is most exciting about what’s happening here?

RD: I just love that lots of businesses like banks just assume that life’s going to be the same that it’s been for the last 20 years. Tesla shows you that it’s absolutely not. So who would have thought that cars, that the car industry would have been disrupted so quickly? Imagine being on the board of Porsche or Mercedes Benz or Ford, and you see this Tesla thing going on. This little startup that gets 400,000 forward orders, and you know this is at the time we’ve just had the VW Audi emissions scandal. What’s happening now is all of those companies are bringing forward their R&D, so someone like Tesla, as a disruptor in the industry, is actually making the whole industry invest faster and driving progress.

So like VW, Audi have brought forward you know, billions of dollars of R&D, and rather than going for the hybrid model, they’ve now got a drive towards a full electric platform. And you know when I sort of heard the reports, you know 18 months to 12 months ago, that Apple was thinking about electric cars, I was thinking, “No, they’ll probably build the center stack, the kind of data console and the car operating system.” If you look at what a car is now, it’s basically batteries and motor technology driven by software and it’s basically just a skateboard blank, right?

So I think what will happen over the next 5 to10 years is that there’ll be a few people that manufacture that base skateboard, the plane of the batteries, the engines, and then the car has really become the aluminum that goes on top. That becomes the brand. So I really do think now that Apple is very well placed to build electric cars and it’s not just about that, it’s the data that’s flowing between them, which is incredibly exciting.

EÜ: You know if you were to look into your crystal ball, what would you say car ownership is actually going to look like in the future?

RD: Yeah that’s a really interesting question, because you know I live in a small town called Havelock North, which is in the North Island of New Zealand, which doesn’t even have parking meters, and I love driving. I love cars and all those sort of things, and then when I’m in San Francisco, or New York, car ownership must be a massive hassle, why would you have one? So I think it probably bifurcates, I think people out in the regions or in provincial areas will drive for pleasure, and they’ll be the last ones to get all the infrastructure in place. But if you’re living in a major population center, and if there’s autonomous driving, you’ll just call a car, and you know the car will arrive. It’ll drop your kids off at school and do all those sort of things. So I think yeah, I definitely think you’ll see sort of two sides of it. You’ll have the driving that takes the pain out of commute, and that’ll be driverless cars, and then I think you know, people like myself or my generation will still want to drive for pleasure.

EÜ: I can’t imagine not wanting to drive on those gorgeous roads [laughs] near where you live. There are many new hurdles to getting new technology on the road. What role do companies like Tesla and Xero play in actually driving those regulations?

RD: Yeah so we’re exactly seeing that. So you know when we were smaller and started we were kind of you know, starting to say to the government, “Hey you should do those things.” And I think when the internet sort of first started being used in business 10 to 12 years ago, that most government departments thought they’d put up a website and small businesses would log on and do their business. Well what turned out is those each become compliance silos and aggregators like ourselves have formed. So in a small market like New Zealand now, we have almost 30% of all small businesses on the platform. So with that sort of scale, we can actually partner with government to really be the retail front end of compliance services. So we’re doing a lot of work with tax, which is being noticed by the Australian Tax Office and HMRC in the UK.

You know what we’re doing with payroll now in the US — walking towards 50 states. There’s a massive amount of complexity that’s there, and I think we’re starting to have this conversation now with government, using some of the platform as a services, like Microsoft Azure and Amazon Web Services, where we can actually advance the state of the art and make it much easier for small business owners, all over the US, to file their payroll taxes. So there’s a whole lot of things coming together in the cloud: providers like ourselves that are getting to scale are actually driving the agenda forward in many cases, which is again, super exciting.

EÜ: One of the things that I’ve been really excited about recently is the release of the signals data for New Zealand. That’s the aggregate data from small businesses on the Xero platform. Now we can set some meaningful benchmarks for these businesses, what are your thoughts on this?

RD: Yeah. And that was like really fundamental, right? So most of the small business data we had, had been found out by survey. In fact most of the studies around small business are all by survey, because the data has always been fragmented. So really for the first time, we can not just see what’s happening inside businesses, but what are the trading patterns that are starting to happen as well? So again this disruption that’s happening in the cloud, and financial software and the automobile industry, all that sort of stuff is just creating this platform for massive opportunity. So we really believe there’ll be far more innovation over the next five years than we’ve seen in the last 20.

EÜ: Do you think there’s something that is lost though when people let their mind go on autopilot when it comes to their numbers? I mean one of the things that I’ve often seen with small business is that they love to just pay someone, “Crunch the numbers for me, I don’t want to think about it.” But then they’re not able to make those really powerful business decisions based on what they’re seeing. So how would you encourage people to stay engaged?

RD: Well I think that’s a challenge for us. We’ve got to take the menial work away and then tell them, “These are the opportunities or when you need to do it.” So you just take a management-by-exception approach would be the start. So tell me when I need to know something? So I just trust that you’re going to do it, tell me when you need to know something. So you’ve got this agent working for you in the cloud. That’s super important. But then I think It’s finding the opportunities.

So what if my accounting software gave me business leads? You know, what if it created new opportunities? Made sure I was working on the highest margin opportunities? What if it gave me some life back, that I could do work from the beach or I could be exporting and traveling? Doing all those things. So that’s how we think about it. And you know, again, these are real opportunities to make real people’s lives better. So you know there’s a huge amount of fun — you know going through this journey and making it happen, and it’s really for us to invent which is, you know, all part of the neat things about being at Xero.

EÜ: What inspires you most about Elon Musk as an entrepreneur? And also as the CEO of Tesla?

RD: Well I think what we like about Elon Musk is, first of all, he’s doing some really big things. So we’re doing some neat things with software, but you feel kind of worthless and weak when he’s flying rockets around. But what I love about what Elon does, is he does have a real purpose. Like what he’s doing with Solar City, and with Tesla, and the Gigafactory. He has a real plan to make the world better, and I think that having that clear purpose and building businesses to do good, we take a lot of inspiration from. I mean that really resonates with all of our team.

I mean we’ve had businesses before. I certainly have, and you know we’ve gone out and we’ve made money, and that’s great. But actually having a sense of purpose, where you make life better for a whole lot of other people, means you can build a sustainable business. And you know when you look back, you’ll feel very proud about what you’ve done. And certainly in our part of the world, business takes a bit of a bad rap. So you know, we’re all about ethical business, strong values, and if you can make life better for millions of people — then that’s something that you want to spend your life doing, right?

EÜ: Yep. And now finally, I have to ask, when do we get to go for a spin in your Tesla?

RD: Well when I get my one, hopefully in August, you can come down and visit and I’ll drive you around.

EÜ: Okay [laughs], so we’re going to finish up with our question countdown. Are you ready?

RD: Go!

EÜ: What business book or idea has made the biggest impact on your life and why?

RD: So the first one that comes to mind is Richard Branson’s Virginity book, because he has a whole lot of different businesses, and it showed how he could apply his brand values across all of those different businesses. I thought that one was quite interesting.

EÜ: What’s the one thing you can’t live without?

RD: I can’t live without exercise. I need to get on my bike or go for a swim. It’s all about stress reduction. So that’s what I have to do.

EÜ: Excellent. What’s the most useful app on your phone right now?

RD: I really like Twitter. I like Twitter because it’s like the naughty school kid’s toy, where you can have these long running gags and all this information coming. And I love that kind of conversation that’s 24/7.

EÜ: I love it! In one sentence, what’s the greatest lesson you’ve learned throughout your small business journey?

RD: I got told something a few years ago and it was like, don’t count on this but, “Never overestimate the impact of your competitors.” So, and we found that in our space as well, if you can just execute a plan and go hard, you probably will do well because there’s not that many people that are really passionate about your business. And I think that whole founders culture gives you such an advantage over large corporates.

EÜ: Ooh I love that. And finally, what skill do you want to enhance in 2016?

RD: I bought a bass guitar a long time ago, and I’ve never really played it. And I just feel that there’s a bass guitarist in me dying to get out, so playing with the Xerocon band would be good.

EÜ: Sounds good. And that’s all we have time for today, Rod. Thanks so much for joining us in the studio.

RD: Thanks Elizabeth. That was fun.

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EÜ: That was Rod Drury, CEO of Xero, joining me here in our San Francisco studio. Thanks for listening to Xero Gravity. And be sure to join us next Wednesday because we’re chatting with the incredibly talented and driven, Nick Pasquarosa, CEO and founder of Bookkeeper 360. It’s a story you won’t want to miss — so see you then.

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