Xero’s unique selling point is its slick and simple user interface
This worked for Mint. I am less confident it will work for Xero, even though many startups/small businesses (myself included) want an alternative to Quickbooks.
The article didn't mention this, but one of the most important selling points is not how it looks to SMBs, but whether or not banks and accountants will work with it. I remember reading somewhere that 90% of small business accountants integrate with Quickbook files or Quickbooks Online. Getting accountants to start using a new system will be a tough sell, especially if only a small number of early adopter clients are there to begin with.
While it may be possible to encourage SMBs to switch to Xero-based banks or accountants, that's a large step for some. I use a neighborhood bank for business banking services (augmented by Dwolla) and a local accountant team that is pretty sharp. Switching is not only a PITA, there's also the risk that a new bank and accountant may be lacking in other areas, even if they support Xero.
You've identified the issue around transition. It's not good enough to be simply better, it has to be great for the accountant and the transition has to be easy.
Xero figured it out - although it 2-3 years after they launched (they are now 7 years old). Their key to paid customer growth is not the UI (which is great) but that they focus on helping accountants improve the way they do business with their clients. Their marketing focuses on the accountants, and includes extensive training and so on, and they offer free practise management software. It changes the relationship accountants have with their clients and creates evangelists.
To help in the US Xero has just launched a Quickbooks --> Xero tool.
Of not for HN is the comprehensive and rapidly growing ecosystem of add-ons and complementary cloud products, many out of NZ, but many (more?) from offshore. It's a very fast growing area with a lot of opportunity.
I showed it to my accountant and we now regularly use it to cooperate on my accounting. I don't have to bring a MYOB file in to her, I just send her an email with a question and she can log in to look at my books.
I had a similar experience. My accountant had never heard of Xero. I sent her a login and she was quickly using the system without a problem. For me, they've nailed making a system that is easy to use without being an accountant, but powerful enough for an accountant to do their job.
I use it also, having come from the awful world of MYOB. Xero, by comparison, is a dream. Account reconciliation is almost fun and I can get through a lot of invoices very quickly.
In India, where penetration of tech among SMBs is abysmally low (and is also a massive opportunity), cloud based accounting software is distrusted because it is transparent, rules-based and off-premise
To avoid taxes, most businesses fudge their accounts. Many maintain two sets of accounts - one for the tax officials and another one for the owners. Thus there is a premium on keeping data within premises and in silos.
The "slick and simple user interface" stops with their marketing site in my opinion. I used it for about 3-4 months but had to switch to Quickbooks Online and I can't stand Intuit. I actually find QBO to be better designed & easier to use.
We work with businesses in QuickBooks very often. We can't even get them to switch out of the crazy processes they've created because they didn't understand the program when they set it up, much less to another platform.
You should be afraid. Everyone uses it differently, there are lots of opaque quirks to development and Intuit does wild things like kill their support forums without leaving the old content up for posterity's sake.
There are 2 or 3 different APIs, with verifying levels of support for various features. At times QB will push a release that breaks everything for all your clients and you're left to deal with it.
I wish I could +1 this a million times. I develop a Ruby gem for the QB API (Online & Desktop)[1] and I've come to realize their whole API is a mess. I've also worked with the Xero API and its much simpler but still lacks some key features like adding a discount to a line item on an invoice.
I was looking at Xero last year and ran into a firm brick wall, from [0]:
"There is a daily limit of 1000 API calls that a provider can make against a particular Xero organisation in a rolling 24 hour period."
That is an absurdly low limit for anything but the simplest of businesses or businesses that aren't actually looking for tight integration, but rather just something to push accounting data to at the end of a day.
I'm keen to hear some more about your needs regarding the API limit. I've found most developers can work around the limit using batch calls. If there is a specific use case that is eating up a lot of API calls we can look at optimizing it.
This kinda sucks BUT I would take it over any Intuit API any day. They have a simple REST API that works exactly like you would expect. I assume if I really need more than 1000 calls a day I could probably contact them and get it raised.
Living in London now I've not really kept up with the start up/entrepreneurial scene in New Zealand (actually it's one of the many reasons why I left New Zealand in the first place but New Zealand's start up prospects are a whole other story). While it is amazing that Rod Drury (Xero’s CEO) has built Xero up to a valuation of about 2 billion, it's not a surprise. Rod had a vision right from the start to build a global company that would outmanoeuvre QuickBooks and MYOB with Web 2.0 and from what I know he had the experience (he's a serial entrepreneur) and access to capital to execute.
I've meet him a few times when I lived in Auckland (New Zealand) and approached him for advice when I was fresh out of University. If New Zealand wasn't such a small place getting access would have been impossible but Rod was really approachable and I was lucky enough to meet him over breakfast and get some entrepreneurial advice (this was about 7 years ago).
Some of the most memorable things he said to me at that breakfast was that entrepreneurs are fundamentally unemployable. I inferred from that statement that being an entrepreneur was going to be the only compatible career path for me (at the time I was considering going into investment banking). At the time I didn't heed his advice (well I was an impetuous youth) and I went to work for a discretionary fund manager but with the benefit of hindsight he was quite right. I really didn't like working for others.
The other thing he said was that I was probably too young for entrepreneurial success and that there's a certain element of experience needed for entrepreneurial success. I'm now a bit older and a touch greyer and with the luxury of hindsight I can now understand what he means. Now in my early 30s, my approach to launching my start up is a lot different to what I was doing in my 20s.
> Now in my early 30s, my approach to launching my start up is a lot different to what I was doing in my 20s.
Rod has said to me previously that no entrepreneur should have money before they're 30... which has rung true with me. At least from a NZ perspective, we have to suffer for our art, it takes time to earn your stripes.
Okay well guess I feel I have to respond to the "from a NZ perspective, we have to suffer for our art". Yes, we do suffer as entrepreneurs in New Zealand (NZ). But I disagree, I think the suffering is self inflicted. An entrepreneur in NZ is up against structural problems and the cultural issues that make it unduly hard on us. Please permit me to explain.
The structural problems:
IMHO the biggest problem isn't distance to global markets but a lack of capital gains tax on real estate which soaks up capital that could otherwise go to new ventures. When I say that, I'm talking about the 3Fs... friends, fools and family. Please don't get me started on the New Zealand Venture Investment Fund (NZVIF), the Seed Co-investment Fund and Kiwi Saver because these are band-aid solutions to the tax problem. And forget about any solution to it. Any political party/coalition that tries to do away with the no capital gains tax on real estate will be committing Seppuku.
Also NZ suffers from a vicious venture capital (VC) Catch-22. With hardly any angel/VC industry there is no quality deal flow (I'm talking about deals where the VC actually has a chance at x1000 returns) which feedbacks to poor prospects for VCs to raise money for their funds from pension funds (they live and die by their returns). So without astronomical VC returns, pension funds just aren't interested in an allocation of their portfolio to VC because it just won't make a difference to their overall fund return. End result, there is no NZ VC.
The cultural issues:
While entrepreneurial tall poppy syndrome was waning when I left NZ thanks to initiatives like the University of Auckland's Spark competition (I was a finalist one year and an eventual winner the next) there are much bigger cultural issues I think kiwi entrepreneurs face that no one seems to talk about. This would be the shame of failure and low aspiration that pervades kiwi entrepreneurs. The shame of venture failure is something I have personally experienced. It took me my 5th time trying to start a venture (between my teens and my early 20s) before I successfully built a company of 30 people. I then got bought out by a co-founder and I went to University. I'm sure that those 4 other failures taught me lessons (the 5th venture did too) but I just couldn't talk about my other failures to people. I always felt that it just wasn't culturally all right to do so and I've seen it cause problems when trying to raise seed/early stage money in NZ. I've found that people keep this silence and project a "I did it on my first go" fantasy. This becomes a feedback loop and the bottom line is that kiwi investors just don't want to invest in entrepreneurs that have 'failed' before. This isn't the case in other places where your venture failure, and ability to keep picking yourself up, is seen as important and needed experience. The low aspiration/horizon thing is also a big problem... I found that on average most entrepreneurs only aspire for the 3Bs... the beamer (BMW), the batch (holiday home) and the boat. Anything beyond the 3Bs and there's this perception that you're just being greedy. And you know what they say... birds of a feather. I remember pitching something (in NZ) to some some high net worths from Silicon Valley a venture idea and then being asked point blank why I want to do it. I was floored, thinking to myself, "isn't it obvious?" I replied, "I want to get rich." To which they replied, "that's the right answer." "We've been travelling across NZ looking for ventures to invest in and not one entrepreneur said that. They all see their business as a lifestyle vehicle whereas I'm interested in a good return on my risky investment." And while they weren't so interested in the opportunity I pitched them, they have become great mentors to me.
My advice to aspiring kiwi entrepreneurs, don't become an entrepreneur unless you are tough enough to handle it... but if you are, then shed a tear for Aotearoa (the Maori name for NZ) and just leave.
I know saying that will ruffle feathers and won't be right for everyone's situation. However after fighting these structural and cultural issues I let go and embraced that NZ has a location disadvantage for new tech ventures. This decision was hard, and the price I've paid has been high. Leaving my friends and family and starting from nothing in London... no friends, no money just my entrepreneurial dreams, has much harder than I ever imagined.
I am a much stronger person because of it. Also I know right down to my bones that moving here has been the best move for my future entrepreneurial prospects. If it doesn't work out then I'll do it all again and somehow, some way, move to Silicon Valley. It's been hard... and I expect it will get harder since I have a baby on the way, but IMHO you have got to stack as many things in your favour when you're trying to launch a new venture and location is part of the equation.
If the scales are tipped against you then you've got to do what it takes to even out the odds.
Best of luck to all kiwi entrepreneurs, you all have my heart felt condolences.
We have tall poppy syndrome, but there's also a great deal of Valley envy. There are as many naysayers telling us to keep our day jobs as there are sociopaths telling us to "fail fast and break things", the consequences be damned.
I think there's an appropriate middle ground, and we'll find our footing over the next 5 years or so.
As a public investor, I was wondering why my ticker wasn't ticking last Friday. I'd encourage anyone in AU/NZ to take a look at Xero - we don't have many public tech stocks here, so it'll be interesting to see what happens to this one and its effect on the scene here.
As always, I wish I'd bought when it first floated (same with Pipe Networks). Any hints? I'm currently looking at CBA's MyWealth platform to start investing.
Xero was started by someone involved with MYOB. MYOB's software is a nightmare for SMB's, so they probably started there as small businesses are happy to put their finances in the cloud. Once they grow their businesses out I can imagine Xero will grow with those businesses (ie payroll). Xero seem to be embracing API hooks into other systems too, very smart play as they can potentially include things like payroll etc etc later down the track.
We realise we can't build it all. So the API enables Xero to stay flexible, if you really need additional features there will be suitable add-ons. We have Payroll in Australia.
Xero is one of a number of companies that are helping to modernize the backoffice for SMBs. While the article focuses on Xero's UI as a selling point, another key value proposition is their integration with other modern back-office software such as ZenPayroll for payroll and bill.com for billing. These sorts of things are providing a more integrated and seamless back office for businesses and accountants.
Their website doesn't seem to mention prices for accountants. If I was a bookkeeper wanting to manage the accounts of say 10 clients, how much would Xero charge me?
Accountants & Bookkeepers aren't charged, the model is to charge the end customer (business owner). The accountant or bookkeeper can choose to purchase Xero and then charge their client for it, or just absorb it into their existing pricing.
Through the Xero partner program there are some perks, including software to manage their practice.
http://www.xero.com/au/partners/
No, only clients that want it. Accountants and bookkeepers can have clients on Xero as well as other platforms. There are incentives to have them all on Xero, but there are no requirements to be 100% Xero.
Sorry, I wasn't clear: Let's say that I want to manage my clients' accounts using Xero, but my clients have no interest in using Xero themselves. Does that mean I have to pay around £19 per month per client?
My goal in choosing an accounting tool is to have visibility and centralisation to ensure that the key people in the company have information instantly about cash flow, assets, the books, etc. And it does all of this really well.
The areas in which Xero is a PITA for anyone considering using it:
A) Expenses.
B) API limits.
C) Payroll
On expenses, the cycle is a long one and unfortunately expenses in Xero are such a mess that our accountants urge us to use an Excel based spreadsheet that we print and complete by hand, and then post to the accountant for processing. Then the accountant summarises the expenses and enters it into Xero. This sucks big time. One of our goals in choosing Xero is to ensure that we can see all of our costs clearly. We want to be able to answer questions like "How much are we spending on air travel?" and if expenses are summarised we lose that insight. Expenses in Xero are non-editable, which makes them very hard to fix when an employee enters in something wrong. We're not talking about fixing the payment amounts as payments would have been made already, but fixing categorisation, VAT (sales tax), etc.
On API limits one of the driving reasons to select Xero was to have the capability for a company dashboard in which revenue, recurring revenue, runway, etc is displayable on the single dashboard along with customer metrics, operations information, etc. We even want to eventually have monetary events in the company books charted "there was this spike of customers due to this Slashdotting, that led to this operations load which in turn did this to the revenue" (or not as is likely the case). The API limits are way too low to be useful, to the point that right now we've not actually built it into the dashboard. The limits are such that developing against the API isn't as trivial as calling it and fetching the numbers, now we'd have to build our own storage and design that schema, etc. It's gone from a quick extension to the dashboard to a more significant piece of work.
On payroll, Xero does not implement any real capability other than recording that payroll has happened. That our accountant still uses Sage ( http://www.sage.co.uk/sage-50-payroll ) to calculate payroll and generate payslips and payment instructions shows how useless Xero payroll is. It's not even fit for purpose, they built the first 80% (recording it and issuing payslips, etc) but not the ability to calculate it.
I don't know how the main UK competitor stacks up against Xero, but I've looked at Kashflow ( http://www.kashflow.com/ ) a few times and would probably try it out in parallel to Xero for a while if they'd complete the picture above and weren't using SOAP for the API.
Xero is a love/hate relationship, it's good but the limitations are awkward and inelegant. It feels half-baked in many ways, parts of Xero are nearly perfect, but other parts look like a first-stab that after 3 years of using it it has become clear that no-one is going to finish.
In Australia, there was a company called Paycycle which filled in the payroll gap, which Xero subsequently bought out and incorporated into their Payroll offering for Australian companies.
My theory is that Xero purposely crippled parts of their software so as not to offend or discourage the developer ecosystem. However, they missed the target with things like payroll, which is such a gigantic PITA for everyone and EVERYONE WANTS IT, that they instead responded by creating a solution that tried to appease third-party developers and their users. As you said, that solution ended up half-baked and pointless.
However, I have great faith in Xero. If they buckle down on things features we want, their developer ecosystem be damned, then we might get a truly killer product.
The developer eco-system is very important. The lack of payroll didn't eventuate out of a fear of offending the developer community tho. Xero started in NZ without payroll. It was only after expanding to Australia that there was enough demand for payroll. At some stage payroll will be available in all regions.
I'm glad you have faith. Lots of features in the pipeline.
Indeed, I signed onto Xero when payroll didn't exist. Payroll is as hard, if not harder than doing payment gateways in different countries - everything's different for each country. But the first incarnation of (Australian) payroll left much to be desired - and I assume that's the payroll that everyone's currently stuck with - so I was elated to hear that you'd bought out Paycycle and were integrating it directly into Xero.
We're going to be integrating internally with Xero in the next couple of months, so hopefully the API call limit doesn't become a pain.
i second that. i whish they would make a policy that everything that can be clicked can also be accomplished by using the API. we're currently working around quite a few things that the UI facilitates, but the API does not.
I handle developer relations at Xero. Happy to discuss your API limit needs when you've got the chance (email in profile). Secondly, it is our aim to have everything available via the API. We have been ramping up resources within the API team in order to keep pace with the rest of the product.
They do great marketing, and the name being a play on Quickbooks is simply brilliant, but it's not at all an accounting system. No double entry, no general ledger...it's just invoices.
Granted, they are incredibly successful, so are doing something right, but I find it fairly annoying that their marketing positions themselves as a Quickbooks alternative ("cloud accounting") when they are not, IMO.
Perhaps I'm being pedantic.
So, Freshbooks aside, Xero is not Quickbooks, so I think that means it wins. :-)
This worked for Mint. I am less confident it will work for Xero, even though many startups/small businesses (myself included) want an alternative to Quickbooks.
The article didn't mention this, but one of the most important selling points is not how it looks to SMBs, but whether or not banks and accountants will work with it. I remember reading somewhere that 90% of small business accountants integrate with Quickbook files or Quickbooks Online. Getting accountants to start using a new system will be a tough sell, especially if only a small number of early adopter clients are there to begin with.
While it may be possible to encourage SMBs to switch to Xero-based banks or accountants, that's a large step for some. I use a neighborhood bank for business banking services (augmented by Dwolla) and a local accountant team that is pretty sharp. Switching is not only a PITA, there's also the risk that a new bank and accountant may be lacking in other areas, even if they support Xero.