by Karen Pasco
A Hawke’s Bay surfer with some sharp ideas has made accounting a simple task for small business owners worldwide. Xero founder Rod Drury talks about how, with the right attitude, staff and strategy, truly remarkable things can happen.
Rapturous applause in recognition of an outstanding performance is enough to flatter any artist. When the management team at Xero received just that from the 400 shareholders at the company’s annual general meeting this year, it was indeed an indication of the solidarity and devotion the financial backers of this publicly-listed New Zealand company have developed.
Funnily enough the company has not yet made a profit, but the outstanding growth that has been achieved in the company’s short life and the strategies for future expansion had this congregation exalting its praises.
It has much to do with the pragmatic, wily and personable man-at-the-helm, chief executive Rod Drury – an “ordinary bloke” from the Hawke’s Bay, who has the knack, know-how and entrepreneurship to take an idea and turn it into gold.
Drury was enamoured with computers at Napier Boy’s High School. As a teenager he could already see the potential in this new technology. His computer teacher Bob McCaw, father of one of the first TradeMe investors Phil McCaw, inspired the boys to delve into this new world which allowed schoolboys to become computer wizards.
Bob started a scheme where parents could invest $50 towards an Apple II which allowed those students to then take the computers home. It was in his Napier home where Drury would take the first tentative steps in learning his trade. “The magic of computing is like an assault on your brain. With computing you’re always solving a problem. Doing a project built more confidence and things got bigger and bigger and bigger,” he says.
When he passed School Certificate, Drury says he became the highest qualified member of his family. On holidays to Wellington he was introduced to an institution called university and it was then he made his decision to attend Victoria. There is no doubt his choice to go on to further education puzzled his parents, but as it turned out, it was definitely a move in the right direction.
After completing his Bachelor of Commerce and Administration (BCA) majoring in Accounting from Victoria University, he took up his first job at Ernst and Young. He says it was the place he learnt his foundation skills and started thinking about more efficient business systems. Once this apprenticeship was over, he knew he wanted to work in software development. “There were no software development companies to work for – so we just had to start our own. We created the jobs we wanted.”
The business partnership was with Tony Stewart and the company they developed was Glazier Systems – a software development and consultancy company. This new business didn’t just provide Drury with the job he wanted; it was also a platform for others. “There’s a lot of people who got their start in IT, bright business graduates with a little bit of technology knowledge, in that company.”
The company was sold in 1999 for $7.5m and still runs today as Intergen with Stewart still at the helm and more than 300 employees – something Drury is extremely proud of. The company’s success, he believes, was somewhat down to its location. “I think Wellington is good for that – being a government town where budgets have to be spent. It’s a great place to build services.”
His next well-publicised project saw him develop AfterMail, email software that allowed users to capture, archive, retain and preserve as well as search for email. It was bought by California-based Quest Software for a multi-million dollar sum. “It was designed to be built up and sold quite quickly. The great thing about it was that it won the best exchange product at Microsoft TechEd proving it was world class technology, developed in New Zealand.”
It was in 2006 that he and fellow Xero founder Hamish Edwards (who worked as the virtual CFO with him in AfterMail) launched Xero, an accounting software company which gives small business a real-time on-line accounting, invoicing, billing and bank system. A year later the company was listed on the New Zealand stock exchange. A brave move for a start-up business, but an essential one Drury insists all other New Zealand business owners should consider.
The need to boost the coffers in order to develop Xero in an industry where the slightest delay can cost was one of the catalysts for listing on the New Zealand Stock Exchange. Another was that with a huge capital input also comes the ability to put in to place long term plans. “We wanted to be a global business from day one. The only way we could do that is if we had some big venture capital.”
Drury knew he had to ensure the story of Xero was heard loud and clear to all potential backers. A business story, he says, is important for any company either looking to be, or which are, publicly listed.
It helps gain momentum so people intending to invest know the full background and successes. It is also important for those who have invested, so they are continually updated on the company’s performance. “Forty Two Below and Icebreaker have those stories. People like a good story, so what we’re doing makes a lot of sense. We have a real track record and passion for what we’re doing, so we need to tell the story so we can build more confidence in the market.”
Thus far this story includes a proven business model with strong growth prospects, growing market opportunity, compelling product offering, credible and capable management team, experienced board of directors and clear reasons for raising money.
Xero’s directors are a striking array of like-minded visionaries – TradeMe founder Sam Morgan, MYOB co-founder Craig Winkler, Works Infrastructure former chief executive Graham Shaw, and Xero chairman Sam Knowles who established Kiwi Bank. With this heavy-weight band of brothers at the top, there is no doubt big things are yet to happen.
Drury is obviously a good story teller. In total the company has raised more than $85 million in growth capital during the past five years (subsequent capital raisings since the initial IPO include $29m in March 2009, $4m from key US investor Peter Thiel in October 2010 and $35m in February 2012) with its corporate profile and credibility greatly enhanced. The company also has an employee share scheme which provides an incentive for long term motivation and performance.
With a publicly listed company comes the extra scrutiny. “It does get quite personal, but when you actually look at it, it’s my job to get out there and tell the story. You develop a thick skin.”
A question frequently posed is ‘when are you selling it?’ For Drury he sees this venture as an opportunity, to not only take the company through its infancy, but also to see it develop through its teenage years to adulthood.
“I could sell Xero but that’s not the goal any more. In the early parts of your career you want to earn some money. Now that I’ve built something that is really interesting, that is good for people, the thrill is in building a global team. There are 260 people all over the world now working for the company.”
Not content with just running his own show, Drury has held directorships on various boards. There was a stint as independent director on the TradeMe board, and he’s a director of the New Zealand Stock Exchange and a member of Victoria University of Wellington Faculty of Commerce Advisory Board.
Having the insight into how other organisations and institutions operate has definitely contributed to the way he developed his own businesses, he says. “As a CEO it’s good to do director roles at some time. I definitely recommend that CEOs look to do board roles and be active ‘sea level’ executives.”
There are also other interests. The Pacific Fibre project which would have seen New Zealand leap into a world of faster internet, opening up a multitude of small business opportunities, is one he says is not necessarily “dead in the water”.
“I’m still talking to government about it,” he says. The project had planned to build a 13,000km fibre-optic cable between Auckland, Sydney and Los Angeles at a cost of around $400 million however failed to find the financial backers to fund it.
Currently New Zealand’s only broadband cable link is provided by the Southern Cross Cable Network, a venture in which Telecom has a 50 percent shareholding.
He says that despite commentators saying the current cable has great capacity, the capping that goes on is ultimately costing New Zealand businesses. “Because of our involvement with Pacific Fibre we are experts on this now, and we can see the potential a network like this could offer.”
He believes government now needs to step up and work alongside technology entrepreneurs to ensure projects like this get off the ground. Drury says a chief technology officer, who would endeavour to look at ways the country could grasp opportunities and gain a competitive advantage over other countries, needs to be created. “It would be real game changing stuff.”
He still describes himself as an ordinary bloke and commuting between Wellington and his home in Hawke’s Bay is one way that Drury keeps the balance between home and work.
“It provides me with the best of both worlds. I’ve tried with Xero to get it right. I really enjoy work, but I love to get out in the sea and have a surf, barbecues at night, spend time with the family. It also makes me really enjoy work more and the city.”
The shareholder applause at the AGM could have been because of the company’s latest growth. Despite taking five years, from 2006 to 2011, to build up the first 50,000 Xero customers, in the past 10 months that number has doubled. It could have been because of the business’s increase in committed monthly revenue which has grown to $34.5m, compared to full year revenue to the end of March of just more than $19m.
It could have been because of the announcement that the company is considering a dual listing on the Australian Stock Exchange to make it easier for its Aussie partners and customers to invest. Or maybe, just maybe, it is because the message Drury delivers is one of confidence and optimism, full of passion and hope about the business he continues to build.
“We don’t have any doubt we’re going to be successful. You make sure you’re managing strategic risk, hire great people around you and control systems – it’s not rocket science.”
