From Xero to a Billion in How Long – Part 3

Posted by on Jun 4, 2018 in Growing with Confidence

The truth is in the cash flow

From Xero to a Billion in How Long – Part 3

When last we met we had determined it would take another 2 to 3 years for you to achieve your goal of $1bn in Revenue.

The actual timeframe would be dependent on growth in ARPU, Subscriber Numbers and Employees.

Today, we’re going to consider the factors that could derail your growth plans.

I think there are five:

  • Technology stability;
  • Technology change;
  • Overseas expansion;
  • Customer Clarity; and
  • Behavioural biases in your partner programme.

Ok, from the top then:

Stability of Technology

Do Business, Beautifully is your tag line.

Invoice on the run, reconcile as you go, reclaim your time are your promises.

These promises rely on stable technology.

As subscribers increase, you will need to invest greater amounts in hardware and software to maintain up-time, and plan new releases / updates of your software with increasing care.

Protection from malicious hackers will be a relentless focus.

Earlier this year, you had an outage that lasted a little over a day. It was keenly felt.

These are rare events for you, but if that changes then you will degrade your promises and your brand.

Your focus on finding SME clients through their bookkeeper and / or accountant, and encouraging bookkeeping and accounting firms to switch their entire client base to your software, means that if your technology becomes unstable you risk losing entire firms of clients, not just individual SMEs.

Instead of a few pebbles rolling down a hill you could be facing an avalanche.

The stability of technology is a present, ongoing risk requiring constant attention.

Technology Change

In your own words, only a few technology companies have spanned a technology generation.

So, you need to be continually looking at new technology, developing better ways to deliver your technology.

But, as your business grows, servicing the existing client base will make increasing demands on your time and focus.

Your clients are your cash flow and underpin your ability to invest.

Keeping your existing technology stable will reduce the time needed to serve the existing client base.

Avoid “buying” technology. Take-overs seem an easy way to build scale, skills and knowledge quickly.

They rarely work.

Your hiring strategy is key to how successfully you manage and anticipate the impacts of changing technology on your business.

This is a risk that is both near term (hiring particularly) and long-term (tech changes and developments).

Overseas Expansion

Your business is active in numerous markets, chiefly Australia, New Zealand, United Kingdom and the USA.

To achieve your growth goals, you will have to expand beyond your home markets of Australia and New Zealand.

Not too many businesses do this well.

Fonterra recently wrote off $405m on an investment in a Chinese infant formula maker.

Westfarmers just wrote off their $705m purchase of UK-based hardware retail business.

ANZ’s push into Asia and NAB’s purchase of banks in Ireland, England and the US were all disasters.

Even though these companies stuck to their knitting, their strategies failed.

These were all investments in established businesses.

Your success has so far come from organic growth…don’t change.

Focus on the UK next. With your antipodal heritage there is more in common with English than the Yanks.

Once you’ve built momentum in the UK you can switch focus to the USA.

This is near term risk requiring active management.

Customer Clarity

Your customer is the party that ultimately pays the subscription to use your software – the SME owners.

Yet, it seems to me your focus is on Accountants and Bookkeepers.

Your marketing, social media, even key positions within your business are geared to accountants and bookkeepers.

I understand these two groups are an important means of accelerating your growth.

But if they ultimately don’t pay the bill then they are not your customer.

Why is this important?

Being clear on who is your customer will help you focus your attention on the things in your business that matter most.

Every decision you make needs to have your customer at the front and in the centre of your thinking.

Right now, it looks like you’re trying to have a bob each way. You need to make a choice.

Behavioural Biases in your Partner Programme

This is related to customer clarity.

Partner Programmes are the accounting industry’s dirty little secret – the nicely alliterated euphemism for a kick-back.

If you go to any accounting conference you will find a bunch of vendors pushing their partner programme at accountants and bookkeepers in the hope they will refer their clients to them, in return for a commission or some other reward.

You run one of these as well and it has been super successful.

70% of your new business comes through this method.

So, what’s the problem you ask? It works brilliantly for us, and is accepted practice in the industry we serve.

Partner programmes are built on encouraging particular behaviour(s) that can lead to poor customer outcomes.

Imagine what SME owners would think when they discover you offer your partners a discount on subscriptions.

Imagine if that discount is not fully passed back to the SME owner.

Imagine if your partners are pricing their services to the SME owner without full transparency, obfuscating the discount they receive and the fee they charge for the service provided.

How will your customer feel, and what will they think of you?

It’s your programme after all.

It won’t be beautiful.

Am I over-reacting?

Well, I’d invite you to think about the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The banks designed a remuneration structure, with behavioural biases, to incentivise Finance Brokers.

Loans from this “channel” were larger, for longer terms and more expensive than loans from the branch network.

The commission paid to brokers drove this outcome – a broker got more for larger, longer and fully drawn loans.

Financial advisor behaviour is also impacted by commissions.

In this case, particular classes of investments received a higher commission.

Unsurprisingly, these products were recommended over others, irrespective of whether it was the right option for the client.

Recent press on superannuation has highlighted opaque reporting making comparison of fund performance impossible.

Poorly performing fund managers are rewarded and the savings of the superannuant diminished.

I reckon there is a wave of community revulsion coming about these commissions and kick-backs.

You need to be in front of this issue, lest it dump all over you.

My advice to you is to scale back the partner programme and ultimately disband it.

In the meantime, ramp up your direct marketing to the SME owners and convert them based on the quality of your product.