The Press, November 2012

When The Hobbit premieres in Wellington tomorrow, it will not be just a creative triumph for director Sir Peter Jackson and Weta Workshop. It will be a celebration of the fact we can stand out in the biggest, richest and most cut-throat industry in the world.

It’s a trail being similarly blazed in the technology sector by listed company Xero, in the admittedly less glamorous, but no less competitive, world of online accounting software.

Xero recently reported a 119 percent increase in revenue to $17.3 million for the six months to the end of September 2012, with a loss of $7m. During this period Xero doubled their workforce from 140 to 278.

100,000 customers now pay the monthly fee for using Xero, around double the previous year. And their growth is accelerating, with the first 50,000 customers taking 5 years to gain, the second only 10 months.

From a marketing perspective what’s interesting about Xero’s rapid growth is the fact they have achieved it by being the antithesis of the typical Kiwi technology exporter.

A classic New Zealand technology company starts from the ‘inside-out’, building a product based on their existing skills and knowledge and shoehorning it into the market.

From a small size they start trading offshore, mostly selling directly to customers rather than through a distributor. Typically they position their product as superior in quality to the competition, but only commanding market or below-market prices.

Xero have broken this mould on their way to rapid growth, something foreshadowed by co-founder and Chief Executive Rod Drury. In a 2010 interview Drury says in terms of marketing that they take “. . .  a strategic long term view. Xero is all about marketing.”

That means starting from the outside-in. “We are really trying to be design led – to understand the customer’s world – to understand their pain and provide something that meets that,” said Drury in the same interview.

Accounting software for small businesses was hard to use, made sharing information with your accountant challenging, required lots of data to be manually entered and gave standard reports that weren’t intuitive for the non-accountant.

Xero have really tried to solve a lot of these issues, providing value for the end customer, mostly small businesses, as well as making life easier for the accountants that serve them. By enabling features like automated loading of bank transactions into their systems, they let accountants spend less time processing financial information and more time giving advice to their customers.

The concept of providing online accounting software for small businesses, which can be accessed online by their accountants, is a concept that has been around for many years. As such it has been targeted by many software companies large and small.

What marks out the Xero’s approach is the fact that they have made it happen, convincing a conservative bunch of people, accountants, of the value of their approach and providing it at a price that is acceptable to the accountant’s small business customers.

A key for Xero has been its ability to develop strong partnerships, not only with the army of accountants who have started to build practices around Xero, but what they call their ‘ecosystem’ of other software providers.

Companies that need software for functions like point-of-sale or customer relationship management, can buy systems that connect automatically with Xero, providing value for them and the developer of the add-on.

Where Xero’s marketing approach has been really interesting though is promotion.

Penetrating a large, conservative, horizontal market would typically see a company spending large sums on traditional advertising mediums like television or radio. Xero have largely eschewed this for a focus on online marketing.

In a blog on Xero’s website Drury says, “Social marketing is blowing up traditional advertising business models. While it may take a while, social marketing has to be a key part of the marketing strategy for any business that wants to grow cost effectively.”

Interesting when a recent study, ironically conducted by arch-rival MYOB, had social media use by SMEs dropping over the last 12 months. Of the 1000 firms surveyed, around 20% were using social media tools like Facebook, Twitter or LinkedIn, down from 25% the year before.

This is less an indication that social media’s usefulness as a promotional method is diminishing, as an indictment on the way companies have used it. Social media channels are communication mediums, ways to share information with potential customers, and only work if you have something interesting to say, and are able to sustain that conversation over time.

What really marks Xero out amongst New Zealand’s technology exporters is their attitude. They are going as hard and fast as possible to grab market share, content to suffer losses while they chase a critical mass of customers. This takes confidence and competence of which they seem to have both.

The Xero story is not quite Hollywood, but is still an inspiring tale for the rest of the technology industry. All it needs is the appropriate Hollywood ending.

 

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