Here’s an inside take on the successful launch of an NZ accounting startup that made big waves in the accounting industry in Australia. Listen in as Wayne Schmidt, who was Xero’s country manager in Australia when it first launched in 2009, shares his insights and experiences from the early stages of this billion-dollar market leader’s journey.
- Digital nomad, philanthropist on a one way ticket around the world
- Transitioning from MYOB to Xero
- Launching Xero in the Australian market
- Xero’s key point of differentiation
- Importance of self-awareness
Joanna: Hi it’s Joanna Oakey here and welcome back to Talking Law, a podcast brought to you by our commercial legal practice Aspect Legal.
Today we’re lucky to have on the show Wayne Schmidt, one of the men behind Xero’s successful launch in Australia in 2009. In this episode, Wayne gives us the inside story of how Xero grew from being a NZ accounting startup to becoming a billion-dollar market leader in the accounting space.
If you are interested in this story, we also dig deeper in our sister podcast, The Deal Room, where we look more closely at the background of the 2 founders of Xero, and examine the listing process, and how an IPO strategy worked for Xero. If you want to hear that further part of the story then at the end of this episode, we will tell you where to find it.
But in today’s Talking Law episode, we are focussing on some practical business lessons, looking at the details of the early days of the launch of what has now turned into a well known business brand. Wayne and I discuss the importance of the concept of differentiation for businesses, and how Xero achieved this in practice.
If you love success stories packed with valuable lessons for business owners, this episode is perfect for you. So don’t go anywhere, here we go!
Digital nomad, philanthropist on a one way ticket around the world
Joanna: Wayne, can I just say firstly a massive thank you for coming in today onto our show. I know this is going to be a big blast. Let’s just kick it off. You are talking to us from Koh Samui (Thailand) right?
Wayne: Yes, and I put a nice shirt on just for you.
Joanna: So you’re sitting there in Koh Samui because you’re living the dream. I think so. You’re on a one way ticket at the moment and seeing the world. Is that right?
Wayne: Yes. One way ticket. I’m calling myself a digital nomad now.
Joanna: Digital nomad! Okay. I like it. I like the term. What the hell does that even mean?
Wayne: We’ve set out our business so that we can work anywhere, so we can work remotely and still travel. Fundamentally, after we launched zero, we were sitting down and figuring out what we want to do in our life. We wrote down all our passions and to travel was one of them, philanthropy is a huge one for us and still wanting to work and give back, but in our own time. So we wanted to control our own destiny, and controlling our destiny meant we had to really restructure our lives. We sold up everything in Australia and then just the leap of faith. Australians are pretty good at saying gonna. Gonna to this. Gonna to do that.
Joanna: They are! 100 percent! So you put action behind it, Wayne. You put action behind it.
Wayne: Yeah. I’m very much an executional type guy. And that’s one of the things like when we were launching Xero. I tend to come in at startups. I’m best at a startup in the first two years. After that, I tend to spend most of my time in the HR Department.
Joanna: Let’s not drill there further. So let’s go back then a few years, Wayne. I guess the story that we want to talk about today is Xero as a whole. So how the business grew to a successful exit, how that exit felt and how it worked.
But let’s just go all the way back because I think in some of our discussions in the past, you said that the plan for (and I guess IPO is not an exit) but the plan for the outcome of Xero was formed right at the beginning. So Xero was formed on the basis of how the business saw itself at the end.
Transitioning from MYOB to Xero
Wayne: It had a very clear strategy. So Xero is a New Zealand company. It was formed in 2006 by Rod Drury and Hamish Edwards, so two co-founders – an entrepreneur, Rod Drury, and an accountant, Hamish Edwards.
They formed Xero with a strategy that they were always going to list because they realised that you’re going to need capital to get a software development as big as this. Writing accounting product isn’t cheap. They wanted to go wide. They wanted to go multinational from day one. So they went straight with an IPO listing very early on. Like within the first year they had IPO.
Wayne: On the New Zealand stock exchange, within a year and get that funding. And they did the bare minimum, what we call a minimal viable product (MVP) which basically means it doesn’t work.
Joanna: And what year was this Wayne?
Wayne: 2006 is when it formed, got listed 2007 on the New Zealand stock exchange.
And I was working for the direct competitor. I was working for MYOB. At that stage I was the country manager for MYOB over in the UK.
At MYOB, quarterly we’re making sure all the Country Manager or Managing Directors would come together from each region and we’d look at Xero and go “Oh, they’ve got a thousand customers. It’s from New Zealand. It’s cloud. The cloud’s never going to take off.” No no no. It’s nothing. It’s just Wayne, would you just shut up and I got the Wayne, would you just shut up often.
And eventually one day, I was sitting there going “I really think this product can go places.” If you remember in those days, especially in Australia, MYOB is the market leader. It’s just huge.
Wayne: And I can remember it was a Friday afternoon. I still remember it quite vividly. Xero wasn’t in Australia. They were in New Zealand. Their share price had been a dollar for a couple of years. It’s on those early years, those real struggle years. It was gradually, slowly getting clients in New Zealand. And Friday afternoon, I sent an e-mail to their CEO Rod Drury saying “Hey, we should catch up and have coffee.”
Big alert for all the people here if you’re staff is saying they’re going out to have coffee, they’re going to look for a job. Okay?
Joanna: Okay. I’m writing this down. This is actually good intel. Thanks Wayne.
Wayne: I’m pretty sure staff saying I’m out to have coffee today. Right. They’re looking for a job. And that’s what happened. I can still remember. I sent an email to Rod, met Rod on LinkedIn and that’s how I was introduced to him, through technology.
Over the process of about three or four months, a very very long interview process and selection process to get through. I was interviewed by everybody including the janitor I think by the end of it.
And one thing led to another, I ended up getting the job. So being the Country Manager. So we launched Xero in Australia on the first of October 2009 and we’re a startup. We launched it on our kitchen table.
Joanna: Wow, that is incredible! And I’ll tell you what. I find that really interesting and we’ll progressed through the story because I think it’s a really interesting story about its growth and then sale over time. But I remember, I was starting my practice at around about my legal practice around about that time. And I’d always come from using MYOB in the background. But I wanted to start this legal practice a little bit more innovative than practices that I’d been in in the past and so I was onto Xero at the end of 2009. So I must have been some of your first starters here in Australia.
But I just remember at the time just thinking this is awesome from a business perspective. How much easier it is from the user experience as a business, as a business owner to integrate with the software without you know I started the business as a really small entity so I didn’t have a lot in terms of staffing so I wanted stuff that was practical and I guess zero is just that perfect example of that type of I guess disruptor. Whilst it’s not disruptor in the Uber sense, certainly it was a different way of doing accounting, bookkeeping software right?
Wayne: I would actually say we were disruptive and I’ll challenge you on that Joanna. Because you’re launching a software company against the entrenched player, MYOB is a household brand name. I worked there you know. I headed up Marketing at one stage and I had a marketing budget where I could just go and stick some brand on the back of a bus and they think I was good.
We had a couple of things that we decided. First of all, we were always going to lead from the front. So we were not going to mention the competitor. So we never mentioned our competitors names and we always led from the front.
But we were disrupting and so when we’re disrupting, you’re going to have to educate. One of the things I learnt very early on is to disrupt, you have to educate. So we spent a lot of the time, like I remember employee number two is my wife in the company.
I still remember how she got hired. Rod was over from New Zealand. We’re at our local Greek restaurant, my wife (Sally) and I and Rod Drury, the co-founder and CEO. Sally went to the bathroom and Rod said “We should hire her.” And I went “Okay. It would be good if you gave me the budget.”
And that was possibly one of the things that made Xero what it was in those early days because she’s a Sales Operational person. So having a Sales Ops person and a Sales Marketing person was such a plan.
One of things to disrupt was she just got me in a car and I did a massive road trip around the eastern seaboard Australia. I would be visiting two cities a day, doing events like this to be in front of maybe six people. I’d danced if it ever got to 10. It was hard because I had a marketing budget and nothing so we have to figure out what we could do which was events and the other thing is social media.
I learned everything I know about social media through Xero and specifically Catherine Walker. Big shout out to Orange Girl. She taught me everything about. Orange girl’s her tag. Anybody from Xero would know. She manages their social media and they lead with social media because we realized the leverage effect. It was a one too many.
I only got onto Twitter like a month before I went to start working at Xero and now I talk about social media all time, around the world and how you can leverage it for any business.
Wayne: Like I could still remember. So when we started it, we got employee shares and that was good. They had a pretty good incentive package because I could still remember.
When they gave me the contract and you’ve got to understand in those days my wife still worked at MYOB and Xero was very cool about it. MYOB was very cool about it. But eventually, she moved across.
Now here’s something for listeners. I can still remember them giving me my contract and we hadn’t talked about salary. You don’t tend to at this level until right at the end, when all the sudden the contract has been exchanged. And they showed me my package and I went “Ohh, I thought I was going to get a bit more.”
So for those people who are employees, I took a big pay cut. Massive! To work at Xero. Because they said what we’re going to do is give you a base salary and we’ll give you the rest in shares and I went, right. Their share had been a dollar for the last two years. And they said, “We’re just going to give you most of your salary in shares.” And I’m like, “Can’t I have it in cash?”
Joanna: But now you’re loving that decision I’m sure!
Wayne: And I’m loving that! Sometimes you don’t have to be the brightest person in the room to do well. Sometimes you have to be in the right place at the right time.
Launching Xero in the Australian market
Wayne: Within the first year, Sally and I realised that Xero was going to go places and we, in our heart of hearts. We knew that because our competitor had done something really dumb. And it was the best thing that we ever had.
You very rarely get a free kick, and we got a free kick. MYOB sent a survey out to all the accounting firms going “which products do you know?” And they listed Xero down.
No one knew of us. Now the nine and a half thousand accounting firms all of a sudden knew about Xero, because we were on the survey that MYOB sent out. And so that gave us a little bit of uptake and so Sally and I decided to invest our own money into Xero. And then immediately the share price went down 10 cents.
And when it’s only 90 cents, it goes down 10 cents! Your wife just looks at you going, “Right. I’m not talking to you for a year until it gets back to at least it’s original 90 cents.”
Joanna: And how long did that take?
Wayne: Geez, we stayed in the doldrums for a good year or so until we started making traction.
So it’s interesting. Xero’s in New Zealand, Australia and the UK. UK was launched earlier and so UK had been running for a while, but they introduced a new Country Manager at the same time. We both started at the same time. And New Zealand was growing fastest, and they had a really good Country Manager at that stage, Liane. I worked really closely with her and we’d constantly sending our team over there and learning from the New Zealand experience.
Now one thing I find is I hate this term “It’s different in our country.” And so I went, she’s doing really well. And I like what we call R and D, rip-off and duplicate.
In New Zealand, I did a lot of R and D, and brought everything. Whatever she was doing that was successful, we copy. So the fastest growing country has always been Australia. Australia ended up overtaking every country now as the market leader. It is the market leader, Australia and Australasian. UK is now the number one and it eventually started following the New Zealand model because that model worked and the countries that followed that model have had best success. I noticed Canada is doing really well for Xero and Singapore as well is doing really well.
Joanna: And so tell us. You’re talking about this model. What is the model? What are the elements of the model that you think really worked and really got your traction?
Wayne: Getting on the road, like sitting in a car. I’ve been watching on LinkedIn, the Canadian Managing Director getting in a car and you’re doing two events a day. There’s ten people in a room and it’s the double effect.
First time you do an event, maybe 10 people. I just wanted ten accountants in a room and I would present to them. But then you come back another six months and there would be 20. Then you come back in another six months and there would be 40.
Joanna: But that started you know like obviously from some really hard work as you say just turning up to event and event of 10 people, you said.
Wayne: I’ve talked in front of three. I have actually talked in front of three people. It’s tough.
Joanna: And so, it’s the hard work. It’s the putting yourself out there. Obviously, product has got something to do with it as well. So it’s a new product that, or was a new product doing things a different way.
Xero’s key point of differentiation
Wayne: Our biggest problem was, so a fear campaign was set up in the marketplace. Our competitors said you know the cloud’s not safe. Don’t use the cloud. So we had to differentiate ourselves. So we had to train people.
I still remember my training. The training was, okay and it’s a room full of accountants. They’re all in suits. Even Wayne was wearing a suit most days.
Joanna: A full suit all the way.
Wayne: Well no tie, because we had a rule. We were a no tie company at least.
Joanna: Right. Right. Right.
Wayne: And so I would always go, “Look, do you do internet banking?” Because I knew that internet banking was happening in Australia. So this is 2010. We were all moved to internet banking, so most of us have moved to that. So I said, “Anybody do internet banking?” Yeah. Great. You actually move money around? Yeah. You don’t get a receipt from that, do you? No. You just do it on your computer. How do you know the money moved? How do you know? And then I go, “Welcome to Online. You’ve been doing online banking. Online banking is just the same as online accounting.”.
And then we figured out the Achilles heel which is. So that solved that security question. So I had that nailed in 30 seconds, so I would get that. That was to be my opening words because I knew that they would be there sitting on there for the whole hour thinking about security. So I would always open with the security question first. So if you ever have, and this is in any industry, if you’ve got something where people have got a concern, bring it to the front. Right in front of your presentation. Don’t leave it to the end. So if people are concerned about something, start with that and get that. Rip the bandaid off. So I’d rip the bandaid off and do that example and get it real world.
I’d actually pick someone. Normally I would pick something. So my process was I’d ask everybody to put up their hand who does internet banking. I get them to put their hand up and then I’d ask them, Oh you do internet banking? Okay. What bank do you bank with? And I would have a little bit of banter with the audience member and I said, “Oh welcome to cloud. You’ve been doing it all this time.” And that saves the audience.
And then the next thing I realized was what was the number one reason why small business owners in the world go bust for all business, not even small business owners. All businesses go bust because of cash flow.
So I did this little analogy, which was I’m going to get the accountants to put up their hand. What’s the number one reason why small business owners or business owners go bust? And they put their hand up and they all say cash flow except for the slow ones.
You know there are some slow accountants out there. You know who you are! Uhm, it’s cash flow. Don’t give me anything else. So you go cash flow. Okay. So you know it’s cash flow. Who here knows the balance in their bank? Everybody knows that. Everybody wakes up in the morning in those days and you just look at your phone and see what the balance is in your bank.
Who knows the balance in their accounting system? Oh, we do that maybe once a week, once a month. We’ll do a bank rec. And there’s the disconnect. And so I had a line that you say, which was every day that you don’t do a bank rec is the day that you like to just keep running your business blind. It’s your company. Run it the way you want it.
If you want to do a bank rec at the end of the month and run your business blind for that month, it’s your problem. But just remember cash flow is the number one reason why you go broke and you say you don’t do a bank rec until the end of the month.
My next example was, and this was helping bookkeeper’s understand the power Xero was you know the information is coming from banks each day or each week or month. They send you a bank statement. Now that used to be electronic in the bank and they print it out and then you get a little human to get that bank statement and re-key it into your accounting system.
Joanna: Yes, I remember those days. I do. Yeah, nuts!
Wayne: So that’s where I pitched. So I had to work my Achilles heel. We knew that in those days we didn’t have payroll. We didn’t have stock. So any sort of certain clients we would set you know.
I had to be very narrow in my client selection because we had a minimal viable product. So you had to be like yourself, sell a service, have no staff, be dealing with one of the banks that we supported. But then in the end, the product grew. I could expand that client base. So instead of using a shotgun approach, we went in very very narrow. So I went, you had to be a sole trader. You have to bank with in those days and you have to sell a service. Okay, let’s find those.
And then once we launched payroll, great. And then once we started integration with CBA and all the rest. It just kept opening and opening. And as the product expanded, we had inventory and things like that. It just grew on us. That snowball effect.
But I suppose one of the things you’ve got to think about. So for my audience is always think about minimum viable product. Don’t go like marketing and using shotgun. Don’t do that. Go niche. Find that perfect fit for your market right now. Maybe your product doesn’t or your service doesn’t suit everybody. Great, and then narrow it down. And tell people that.
So we would say to accountants this product, in those days, if you’ve got staff. We didn’t integrate with any payroll product so bad luck if you have staff. But we ended up integrating with a product called Paycycle. We ended up buying that company.
The only regret I have is we bought shares via our super fund except my financial planner said I don’t want you to double down and put everything, wished I would have. For that would have been even be better. But we put a large percentage of our super into Xero shares. But if I had my time again. Sometimes you have got to let your gut, because my gut there was I’m betting on myself and my team.
Importance of self-awareness
Wayne: The other thing I liked about Xero. Rod Drury is really good at this. Country Managers at Xero are like the doctor in Doctor Who. We regenerate every two to three years.
I was only country manager for two years and then we had Chris Reed come in. So I moved over to just head up sales, because traditionally I’m sales person. I sell stuff.
We’d grown to have about 14 staff. I’m not a big people person. I don’t like managing teams, like that type of things. I’m great at startups. Give me a startup with one staff member or two staff members and I’ll get you to 14 and I’ll get you a market.
And then we had Chris Reed come in. He came in and worked for three years so he’s ex-Microsoft. He came in for three years and then he regenerated to Trent Innes. Trent Innes came, and he’s the new MD and he’s now got the company with 250 staff. And he’s been there probably for three years now as a country manager.
So this process of, and that has worked really well in the countries where they’ve done that. They’ve regenerated and picked the right person for that level at the company. So even now Rod stepaside as the CEO of Xero and they’ve now got Steve Vamos ex-Microsoft now leading Xero. Nothing wrong with that because you’ve got to get the right person with the right skill set for the company to take them to that next level.
Joanna: I think that’s that’s a really good point because a lot of organisations are a bit set and forget. I mean maybe not forget, but set and sit. But I really like the evolution that you’re talking about and obviously you stayed within Xero. But you took your skills and your knowledge and you moved it in to the next area of the business that’s suited where you were obviously, where it was at that phase and where you were at that phase. I think that’s a great comment on a way to approach a business growth I guess.
Wayne: Most people need a bit of a reality check on what they are good at and what they not at. So this is not my idea. Again, I do a lot of R and D, rip off and duplicate. This is Darren Reed. This is from you. This is a shout out to Darren, so Darren got me to do this. Everyone should do this. Get a piece of paper. Put a T on it. Write what you’re really good and write what your bad at. Really be honest.
I am crap at managing large teams. What am I really good at? Just give me something and I can sell it. That’s not a problem. I can sell anything. So I really got down to really nitty gritty. Then write down what you’re passionate about and what you’re not passionate about, and I love this. People say follow your passion.
Okay yeah, I’m passionate about snow skiing. Am I going to be an Olympic snow skier? No. I don’t have the skills for it! This “go follow your passion” thing I’m going to seriously punch someone next time they say that. Just because you’re passionate at it, doesn’t mean you have the skill set for it.
Write this down and it gives you clarity. I do this every couple of years. I’ve realised that it’s hard to take. I’m country manager and now I’m stepping down to national sales manager. But I’m country manager. Most people aren’t self aware.
I used to read and write because we worked really well and it was very hard. That’s this first couple of weeks in our country manager in one and then we had this really good working relationship where we played off each other. I was his sounding board and I took feedback really well. So I’m quite open for just tell me what I did wrong. Give me feedback. And he’d always come to me and say “Hey, I would approach this way. Trent’s awesome at doing that, growing his team.
So one of the things is just be a bit more self-aware. Like I don’t want to be a CEO. Everybody thinks. I’ve been a CEO now, a couple of times. And I go, how did I get into that role? I didn’t even like it. Sit down and write down what you’re really good at, what you’re really crap at, what you’re passionate about and what you’re not passionate about.
If you’ve done it enough times, I just did it last year just before I resigned from my last company to do what I’m doing now. And that’s when we came to the realisation that we’re going to resign and start travelling and start giving back and doing a lot more philanthropy.
And so we’ve gone on a three month holiday. So we started on the 2nd of December last year, we’re taking three months off and in that holiday we decided that we were going to resign from the company we were working for. So Sally resigned on the way back, just before she got on the plane. I resigned when I got off the plane.
Wayne: Didn’t have an idea what we were going to do. We just knew we’re going to travel. We left Australia three weeks after that.
Joanna: Now that concludes this episode with Wayne Schmidt, Xero’s former Country Manager, the man who launched Xero in Australia back in 2009. Today we heard an insider story behind Xero’s journey from being an NZ accounting startup to being a billion-dollar market leader in the Australian accounting space.
I hope you enjoyed what you heard today. If you did, please join us again next week for another episode with Wayne. This time, we’ll talk about Wayne’s new life as a digital nomad, mentor, and philanthropist. We’ll also talk about the importance of building giving into your business, and how you can go about doing that without taking away focus and attention from your day to day business.
And if you want to hear more about the story of Xero, in our sister podcast The Deal Room, we dig deeper into the background of the 2 founders of Xero, and examine the listing process, and how an IPO strategy worked for Xero. If you would like to listen to that episode, just head over to The Deal Room Podcast, and look for episode 71 – or go to our show notes for this episode 73, at Talkinglaw.com.au where we will link right through to that episode 71 on The Deal Room.
Well, that’s it for today. if you aren’t already subscribed to Talking Law, please head over to Apple Podcasts or your other favorite podcast player and hit the Subscribe button to get notifications straight to your phones when our next episode is out.
Thanks again for listening in! This has been Joanna Oakey and Talking Law, a podcast proudly brought to you by our commercial legal practice Aspect Legal. See you next time!
Our General Legal Services
Are you looking for a top quality legal team to assist you in your organisation?
Aspect Legal is an innovative commercial legal practice that specialises in providing fast and professional services for their clients. Our commercial legal services cover a wide spectrum of disciplines – contract law, dispute resolution, business sales and acquisitions, brand protection and IP.
We work with clients both large and small, and we’re all about helping you grow while protecting you from the unexpected storms of business. If you’d like to chat about how we might be able to assist you, simply head over to our website at aspectlegal.com.au to book in time for a free discussion with one of our lawyers. So get in touch today!
Disclaimer: The material contained on this website is provided for general information purposes only and does not constitute legal advice. You should not depend upon any information appearing on this website without seeking legal advice. We do not guarantee that the contents of this website will be accurate, complete or up-to-date. Liability limited by a scheme approved under Professional Standards Legislation.