From Startup to Scale: Financial Lessons from Xero's Founder [Listen]

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  Enzo: Thank you so much today for joining us. I'm really excited to host today's conversation with Rod Drury, a visionary founder and someone I'm fortunate enough to call a friend. My first encounter with Rod actually captures everything about Xero's spirit perfectly. We met in Denver in 2015 at XeroCon.

  I was wearing a superhero costume, running around trying to get attention for Accounting Prose and really interested in meeting new people. And I saw Rod, the former CEO of Xero, zooming past on a penny skateboard, and that moment showed me exactly what made Xero and Rod really special.They're both unpretentious. approachable and ready to break convention.

  Xero's story is remarkable. Going public with just 100 customers and going to raise over a billion, with a B, dollars. They now have over 4. 2 million users globally, which is amazing. Today we'll explore the strategies and pivotal decisions behind this journey from early stage funding to scaling globally.

  Rod will share some of his personal challenges and practical insights you can apply to your own startups. Rod, thank you so much for joining us today. I can't think of anybody better to guide us through the intricacies of growing a startup to a global leader. Thank you.

  Rod: Great to see you.

  Enzo: We only have an hour together and I have so many questions, so I'd love to hop into it if you're okay with that.

  Rod: Shoot.

  Enzo: All right. So, before you started Xero, you had great success with another startup called Aftermail, which is an email archiving solution, and you sold that before going on to your next big venture, which is Xero. What lessons did you learn from Aftermail that helped shape the vision for Xero?

  Rod: Yeah, so actually even before we did Aftermail there was a new bit of cloud development technology that came out on the Microsoft stack called ASP. NET. I took a few weeks and I built an online double entry accounting software in .NET, and it was pretty cool. I had a background with Ernst & Young and Arthur Young before that actually, implementing financial software, and it really bugged me that all the financial software I put in place wasn't a proper relational accounting system and most of them didn't even have proper journals. So when ASP. NET came out, I thought "I'm going to build one of these".

  I think that as a person who'd done implementation of accounting software and knew how to code, building a general ledger is kind of one of those fun things to do.

  So, we did that and I realized that I wanted to build accounting software, but I didn't have enough resources to do it properly. So I parked the idea and then went and did Aftermail, which essentially was a relational database for exchange. And we ended up selling that within 18 months of starting it.

  And we won best Microsoft product at the TechEd in Florida that year. That gave me the capital to do Xero properly. And what I realized at that point is that I kind of wanted to make some money and I love the kind of R&D by acquisition model where you build up a bit of technology and sell it. But Aftermail did sell very, very quickly.

  And that gave me the capital to do accounting properly. And what I thought of at the time was, accounting wasn't really like a "build and flick." It was something that there's so much code to write, and our vision right from the beginning was to have accountants and small businesses on the same database.

  So I just knew it was years and years of development. So rather than put our own money and venture capital money in, which kind of drives you towards an exit. We decided to list Xero right from day one, really, which was crazy at the time. But that allowed us to build a long term sustainable business and always have the right money.

  So the number one thing I think I learned was having capital in business allows you to execute strategy and it's such a luxury for an entrepreneur to actually have the resources that you can take your good ideas and, you know, pay to hire those great people, and to do some of those ideas.

  Is that a good start?

  Enzo: Yeah, that was a lot of information! So, as you know, access to capital is so hard and knowing who to talk to you and where to get it as super challenging, especially for a brand new startup. And you were able to get people on board with a hundred users at the time and 50 people on the team.

  So you had to go and pitch investors like, "Hey, I've got this great idea that you had even longer long ago. I really want to make this a real thing." How did you get everybody on board with your vision?

  Rod: I'd done a couple of startups before and obviously having just done Aftermail. And also I was on the board of a New Zealand auction site, basically our version of eBay, which we sold for back in the day, 750 million dollars, which was a huge amount of money back then. So we'd had a few wins and at the time tech was hot and because I'd been involved with a few things, it was easier to raise money then. So the lesson out of that, it's much easier to raise money almost if you don't need it and if you've got experience, so you kind of track that back, I think being successful in a few small things where you may not need money and building that credibility and experience network, some of your own cash is a great way to get started. So normally how people do get started is building a services business. And normally there's sort of business cycles where services businesses in whatever category get rolled up. And so trying to build a service business at that scale usually doesn't require a whole lot of capital, but if you can get to an exit or be part of a roll up, then you get that business experience, a little bit of your own war chest, you get a network of people around you, and then you can go and raise money.

  Enzo: I like that idea. Asking for money when you don't need it, which is really hard whenever you're a startup, but going backwards and know that you don't have to have a big winner right away, but get your feet wet, learn the lessons that you need to learn to be a founder to be an entrepreneur and to be trusted as somebody who knows what they're doing is important.

  So start a bit small, get the experience and then then go find people to invest in a bigger idea when you're ready for it is what it sounds like.

  Rod: Yeah, and I started Xero when I was 40 years old, and I know that because my my middle daughter was born that year, and she's 18 now. So like it wasn't like Xero was just to smack it out of the park early.

  That's normally what you hear about. But I, kind of think you know, in your 20s you kind of build your base skills and, you're kind of building your craft and understanding how things work, understanding how work works. In you're 30s, you start doing some more serious stuff. You're moving through organizations, you're building a network, you're being seen as an expert in things.

  And then in your 40s, you've got a lot of experience and you know, you're pretty hungry but you also usually balancing family and trying to work really hard while balancing families and those sorts of things. And now I'm in my late fifties. I'm having more fun than ever. Yeah.

  Enzo: I'm a little bit jealous of what you're currently doing out like biking and windsurfing or kite surfing, something like that. I'm not that adventurous, but I see your adventures online and I'm a bit jealous.

  Rod: Yeah. I mean, I always played a lot when I was when I was working and when I finished with Xero about five years ago, the business became much less about what product we'd write for the next 10 years, we kind of knew what that was, and it became much more around people, and you know, we were, I think at that time, we were about 3,000 people, now we're about 5,000 people.

  So it was about where we do things and you know, do we do marketing in the States? What's in the UK? Where's the center of excellence for support? And so it's much more a people business. And I was far more interested. Well, I was interested in our people, but for me, I loved product and innovation.

  And I realized that with Steve, who was our second CEO, he was much more experienced at building global teams and how all that works. So, you know, it was a good opportunity to jump off the rollercoaster a bit, go onto the board which was super fun. And what you always find is that as things grow, there's always people that are the right people for doing that particular role.

  And another little bit that I kind of worked out pretty early, because we listed so early, I was always working on the business, not in the business, like right from in our first year we listed. So I was spending a lot of time working with investors. So still doing a lot of product vision stuff, but I couldn't go in there and write the code myself, but being public meant that I was always working on the business.

  And if there was anything I really had to do every day or week or month, then I needed to hire for that. So I was always out skateboarding around conferences, meeting people and thinking about, " Who can I hire?".." Who's our next person to hire" and building a team. So being on the business and not in the business, I think was a, a by product of listing really early.

  Enzo: Yeah, I think that's generally pretty hard for people who maybe have come from having a service business background and then they go into software. They're so used to being the person who delivers a service that thinking about the business a bit differently or your role in the business becomes a bit challenging.

  But I really liked that you were able to go out and shake hands and meet people because that's how we got to meet for sure. And I think having your experience in accounting prior to starting Xero, that probably helped your future investors understand that you actually know that there's a problem to be solved and that, you know, you made something that needed to reach a larger audience.

  So they believe in that vision because you, you actually knew the problem that you were trying to get fixed. And I can say from my own experience, using lots of other accounting software, Xero is my favorite accounting software to use, because I feel like it is built for accountants to serve their clients, which is different, from other tools on the market.,

  Rod: It was interesting when we started and I said, I'm going to build accounting software and was like, well, there's thousands of those, but we did have a technology change.

  There was the move from desktop software to the cloud, but I think more importantly, I just really love databases and just bugged the hell out of me that we didn't have a proper relational database. And if you can get things into a relational database, it's easy to get reports out. And also, as I said earlier, I love double entry accounting, you know, it's like doing a Sudoku puzzle, right? It should always be right. It's always in balance. And when I'd implemented other bits of accounting software, they hadn't actually written, they hadn't actually had a proper double entry accounting engine. And then what we did when we were really thinking about Xero, we were like, you know, as we were talking to users, thinking about how, how we used accounting, it was obvious that, you know, the process of having all your stuff on a hard disk and then sending it to your accountant and a few days later they'd, you know, pick it up but, but you're already using your old version of software so everything was out of sync.

  Getting everything on the same system was right. But also you had to make a distinction at the beginning. [We had to ask ourselves], "Are you going to do cash or accrual based accounting?" We were like, "Well, that's silly. Why don't we just model all that into the same engine?" So we actually built a multi-perspective general ledger where the journals had both the cash and accrual part, which I don't think anyone had ever done before.

  And then about a year into what we were doing, we were just working in New Zealand and Australia mainly, and we soon realized we needed multi-currency and we looked at how everyone else was doing currency and it seemed like a real hack. So we actually stopped core development for about two months really early on and we introduced currency into our model and so we had real time or hourly currency feeds coming in.

  So, in our multi-perspective general ledger, we had real time mark-to-market real time currency updates and again that was something which I don't think had been done before. So it wasn't just that we were building a cloud accounting software. I still think today we've built the best accounting engine ever.

  It's a proper, double multi-perspective general ledger. And I hope the accounting nerds on the call get off on that as much as I do.

  Enzo: Yeah, I was incredibly impressed with the use of X-Rates to do the currency exchange on the balance sheet. That was something I'd never seen before. My mind was just blown. I didn't have to go and try to figure some math out to sort out when this exchange actually happened. It was just sort of magically happening behind the scenes.

  Going back to your experience of struggling with, "This doesn't work. I need it to work. Why can't it just work the way I want it to work?" and then going to your investors and saying," I've got an idea", probably helped them to believe a lot more in the vision. Did anybody on your small team, so you had 50 people on your team when you first really started, were they influential in supporting that vision or did they come to the table with other really big problems to be solved?

  Rod: Yeah, no, we we had a really smart group of, at the time, pretty young developers. I've worked with 'em on a number of things before and none of, none of us had really built a product of the scale. Aftermail was pretty good, but we were doing something big and ambitious and they were really smart people.

  So I remember I brought, I bought everybody "Accounting for Dummies" and we started,  basically teaching everyone about double entry accounting. There was one of our early guys, Kurt and Craig but I think Kirk especially really cracked this idea of modeling cash and accruals and the same thing.

  I remember coming back from a meeting and he was saying, "Hey. Look what I solved!" I was like, "Whoa!" It blew my mind. It was like that wasn't my idea, that came from the team and none of them were accounting experts, but they dove into the problem. But we had this thing of if everything is a journal, then it has to be right.So when you click on any transaction in Xero, you can get back to the journal, the debits and credit, you know, we were always, what was it? Credits by the window? Yeah... 

  Enzo: I really like that you can get to all the information in Xero multiple different ways. So if I'm looking at a financial statement or I'm in a journal entry, I'm in a bank account, everything links together. It's like a web of information or relations with each other, which I think is amazing.

  Question about the team though. So you said, you know, you're always out looking for people who can join the team who can really help grow this vision. You're working on the business versus in the business.

  Were there any hires in the very beginning that were really important and influential in, in scaling the business or that you would recommend that people hire for first?

  Rod: [I always hired] by people first. So people that I really met and they made an impression. So you like them and they're smart.

  I'd always be thinking, all right, where can that person fit in rather than having roles and then trying to find people. And sometimes it happened really quickly. Like you meet someone and then the next day you're like, "Oh, actually that'd be perfect for that". Or six months down the track, you'll think of something and you'll just remember," I met that cool person."

  I remember when we needed a new CFO, we had I met this amazing, amazing lady Kirstie Godfrey Billy, who was a partner at PwC. And she really impressed me when I was traveling around the country and doing some presentations. And so I remember emailing her one time and said, Hey, I need to think about getting a new CFO.

  I'd really like it to be a female. And and I basically described her and she came back to me. She said, Hey, that sounds really good. I really think about it. And then about a day and a half later, she went. "Do you mean me?" Oh,

  that

  sounds interesting. Would you do it? Ended up getting the PwC partner pretty early on into our business, which was cool.

  Enzo: Yeah, I noticed that Xero has done a lot to have women be in positions of leadership, which I haven't seen in other organizations. So thank you for doing that. That's absolutely amazing. A question though, about your culture with growing the business and having investors to answer to. At the very beginning, or at least the beginning for me, I learned about Xero 2013, 2014, and the culture is just amazing, like the people are amazing, I feel like I hate to call people a family.

  I like it's a software company that I pay, you know, but truly it is like a family. I check in on people, people check out on me. It's awesome. But when you have investors, you have to answer to investors. And sometimes that can sort of I don't know, stall or change the company culture, but I don't really feel like it changed the culture with Xero.

  So how would you say that you were able to maintain the culture while having people to answer to other than yourself?

  Rod: We really set up values early on and we did tweak them a few times, but essentially values are really consistent and we just keep referencing values all the way through.

  Say you have to fire somebody, human is a really key value for us but the reality is when you're growing quickly, the people that you'll bring in will be perfect for that level. But two years later, they may not quite be there, but you think you do in a very human way. So we always make sure we look after people.

  And quite often I'd phone up other founders and say," Hey, I've got this amazing person. Who is just finishing at Xero that would be great for what you're doing." So even past someone leaving, you'd try to get them, you know, try to help them with getting their career going. Cause you want that alumni to be great.

  And they are great people cause we hired them.

  So being human was a key value. So in everything we do, we think what's the human way to do things. It doesn't mean being weak, because sometimes you've got to be really strong . And in New Zealand and Australia, public companies report every six months, not every quarter, thank goodness.

  But when you stand in front of all the investors every six months, every dollar you've spent, every dollar you make, you're kind of, you know, your answer rule too. So that sharpens you up pretty quickly. So if you've got, somebody's not performing or maybe a great person, but they don't gel with the dynamic of the team, then you have to act on it pretty quickly.

  So being human as well as you know, being decisive, but when you decide to be really clear, so we don't like prolong anything, we just get things done. And then even with our investor calls, I you know, always try to get a laugh out of everyone as well. Right. So. We never took ourselves too seriously and we always let our personalities come through with those investor calls.

  So we'd be brutally honest. If we did something wrong, we'd say, "Hey, not happy with this. This is what we're doing." And we earn that trust and allow people to be part of that long term journey. So that was always part of it. And on the female thing, , at the time we were doing it, I know it's, you know, a bit of a dirty word now, but diversity and inclusion has always been a really big thing.

  And in New Zealand, that's a very strong value. But it was never a token thing. You know, I always think that your board and management and team need to match your customers. And in the accounting industry, there's actually more females than males. So I always thought we should try to keep a 50 percent plus females.

  We're probably more than that now. And our board and executive leadership team and actually right across the board, which was hard in a technology company. So we actively did that. And one of the things I always did was if we had a senior woman leave, I'd always ask why. You know, was there a glass ceiling or there's some other reasons.

  So that was always part of our culture as well. And as you know, if you ever want something done, give it to, give it to a returning mum. They're the hardest working people you'll ever get in your businesses.

  Enzo: Yeah, , that's totally true. Going back to giving somebody a soft landing.

  If you've had to let somebody go, it sounds like whether they were the right fit at the time, and then you grew in the wrong fit later, you would help find them another role, or you would perhaps just give them a word of recommendation, which I think is really great.

  And I think that sometimes people forget that businesses as they grow, the needs change or the, the needs for that particular role change. So somebody who might've been a good fit. A few years ago, when you were a much smaller organization, it could still be a really great person, but not a great person for the team any longer.

  So I think doing it with that human approach is really fantastic because you're recognizing that there's nothing wrong with them, your needs have changed and, and helping them to find something new is great. And asking somebody who's leaving like a woman did we hit a glass ceiling? Did, did we do anything that made you want to leave is really important because finding the right person and going out and having to find the next right person is really challenging and frankly, pretty expensive to have to go and hire a new person, get them trained up and everything. I think that Sukhinder and her new role.

  I think the first year she spent going out and listening to customer stories. I met with her personally another member of my team and I both went together and that's a whole year of having to relearn the business. So that is very costly as well. So making sure that if you have the right person, keep them.

  If they're not the right person, let them go as gently as you can. Those are really nice bits of wisdom that I think anybody can take and bring into their business.

  Rod: Yeah, absolutely. It was also interesting that when you're building a business from outside of the US, you've got to think a little bit differently.

  So most tech businesses are US centric, so they're very hierarchical. So you'll have a CEO and maybe a bunch of presidents or vice presidents, and you'll have a head of international, then you'll have country managers or country leaders and everything, and they're like four levels down the organization.

  So when we were competing with Intuit pretty heavily outside of the US their country leaders were quite a lot more junior than our senior people. What we did being outside of the states, I couldn't hire like a head of the U. S. that was, you know, four levels down the organization. So we had to build an active matrix.

  So we had quite a different organizational structure, which gave us a lot of competitive advantage. So any senior, any country leader would want to directly report to the CEO, right? Yeah. So, mm-hmm . I had to have all those as direct reports. And then also I had my functional reports. So Chief Product Officer, Chief Technology Officer, Chief Financial Officer.

  So effectively I had the kind of head office thing. So we had this matrix. So what we did was we defined that matrix explicitly, and on the cells of that matrix, so the CFO. has an intersection with the, you know, president of the US. And then we thought about it in a certain leadership way. So what is the CFO?

  What service are they providing to the country leader? And that'll be like the the budget to operate, you know, the resources, some central services and what they are providing back is monthly management reports and the commitment to hit the numbers.

  And then we define the cycles where we would check what was going on, all of those things. So we have like, you know, monthly report quarterly business review, the annual results, all those sorts of things. And I was kind of umpiring the matrix. So the matrix was flat but it was all, everyone was working with each other, and if I found I was doing stuff, I'd have to add a new column or row to the matrix. And so that's how we managed to scale, but also have really senior leaders in each and each of our countries. So our senior leaders were a couple of levels above most of the Intuit country managers.

  And in the UK, in the UK, Gary saw three of them in Australia, I think four because we had a, you know, someone who was a CEO pretty much themselves running a whole country. And that was just not something that we designed at the beginning. That was the nature of building a business from outside of the U S.

  Enzo: So it sounds like in, in that system, it was a bit more of like flat versus like the hierarchical system, but a lot of people were reporting back to you. So I have two questions or many, actually many questions, but number one working on the business versus in the business, you were having a lot of people answer to you and you also had, you said your daughter was born the year that you started Xero and you had a family.

  So how did you manage your time between growing this large scaling company and. having you time or having family time or having daughter time. How did that all work?

  Rod: Yeah. So, so that was the matrix. So the matrix was, each country manager knew the functional relationships they had with each of the kind of C level people.

  And I was umpiring the matrix, not, not, and kind of managing the matrix, not each person. So that's how they had the direct report. So I had all of the C levels and all of the country managers because I couldn't have a US leader that was four levels down in the organization. We couldn't hire a senior enough to do it and be good enough to do the job.

  So the matrix was the tool and then we managed that. So that allowed me to work on the business kind of if something came up. And if something I saw or observed was inconsistent with the vision of success, I'd jump on it. Otherwise I assume everything's good. So I was kind of managing by exception and making sure that the matrix itself was working really well and always hiring people into that and maybe the next level down.

  And that, that really was the key to it. And, but it's really hard with families and especially from a small center of South Pacific, I was, traveling hard for many years. When COVID happened and we had lockdown, , after two weeks, that was the longest I've been in one place for 10 years.

  So that was a big readjustment. And so that was hard, but you know, when I came home, I just trying to be a good dad and. Yeah. And, and that sort of stuff. But that was part of the reasons for when I retired five years ago, it was, my kids were getting into mid high school and I hadn't spent the time I really wanted to spend with them.

  And when I realized Steve would do a better job at the people side of things and was interested in that, then that was the opportunity. And it's been great. Last five years I've spent heaps of time with the kids, just took my oldest and my youngest in New York before Christmas, which was awesome.

  And you know, getting those really special times.

  Enzo: I remember when my son was middle school, high school, and I feel like his reaction would have been like, go back to work. Stop bothering me. Stop getting, you know, getting all up in my business. So you said a moment ago, my other question was, you know, you had people that were delivering key financial metrics to you.

  It sounds like, so just giving you like high level, "these are our objectives. This is how we're doing". You were managing by exception saying, okay, well, all these are good. Oh, this doesn't look so good. Let's talk about that. Fix it, move on. So what are some of the things like, key financial metrics, whether they're financial or non financial really that helped you understand how things were going and like, you know, in a moment be able to decide we need to make some changes.

  Rod: Yeah, so like I've got the attention span of a three year old, so I'm not a micromanager. I had to kind of set the vision and if something becomes a problem and I can see it's in the way of the vision, then I leap on it. With, with all limbs the, the key metric I used to really like, obviously we had a revenue growth, but I loved average revenue per employee.

  That's one of my favorite metrics because it captures so many things. It basically says, are you efficiently building a machine? Does each person add value to the machine? And you know, cause that's the So you can, you can add people. And if you're average revenue per employee just is, is flat. It means you're not efficiently adding people.

  You're just putting bodies into the machine. You want smart people to be automating everything. And for a lot of years we were flat and it was just drove me crazy. But you know, we've we've got through that, but there's so much investment, like we had a massive investment. Because while we were serving small businesses, we quickly became an enterprise ourselves.

  So we were, you know, deploying Salesforce inside our system and that's glacially slow. And you know, I used to, they used to bug the hell out of me as well. It's two years to, to implement something. How can that be? It was some of the the dilemma or just a surprising thing. We were serving small businesses while being an enterprise ourselves.

  And not just building software for our customers. We were building our business while we were serving customers. So it was an incredibly complex thing. There's a lot of stuff we just didn't get to because there was so much to do. And even now when I left, there was 10 major projects that I still go in and bug everyone on.

  Can we just get that one done? There's so much stuff, it feels like we're at the, we're at the end of the beginning and there's many more things we can be doing. And also like our software is now 18 years old. Some of it, some of it's five minutes old, but it's like painting a bridge. You've got to, you know, as soon as you finish, you keep going back and doing things.

  So there's a percentage of stuff, which is new stuff, which we all get excited about, but when you're this big you always have this thing. It was like, cause we're running so many, and I thought over 4 million customers on our servers, it's like changing the, changing the engines and applying passenger jet, you

  know,

  so it's so much complexity.

  Enzo: Building the plane as it's flying. I, I feel like that sometimes, even within accounting practice, we've got so many things and our own infrastructure to, to build and fix and implement but I do think as a smaller organization, you can be more agile in the very beginning. It's when you're a bit larger that you kind of lose that agility or have to think a bit more strategically about how you're going to make those changes, like how we're going to get Salesforce going, et cetera.

  But For the, for the revenue per employee, I imagine that that went down as you scaled because you were bringing a lot of people on board and you said it was flat for a little while, but you did things like implement automation and other, other strategies to help bring that back up. Was there anything else that was important in getting those numbers up both on a person level, but then as a whole?

  Rod: Yeah. And I mean, that was the metric catches a lot and churns another big one, right? So people are churning out again, you've got to earn customers love every day. So we don't do long term contracts. So if you see people leaving, it's like, well, what's going on? So it was just so real. You can't fake that sort of stuff.

  And then and then you're just trying to build network effects into the product. And one of the things that we didn't do as much as I would love us to do was we never built for virality in like our, we were so careful about responding to what customers want. We didn't really hack our way to grow.

  We're doing some good stuff now, but there's we just had these almost really such strong values and such. Now all of our staff were just wanting to do the best things for customers because you know that if the servers aren't working or something's not there. There's literally millions of people now that, you know, you cause pain for like, if the service didn't go down, I'm in a catatonic state rocking in the corner.

  Enzo: Especially if it's like right before a tax deadline! Even worse.

  Rod: Yeah. And you're getting all the messages. And so there's a, you know, like there's so much responsibility. And what I love about our culture, we've always taken that very, very seriously. So yeah, so churn's a really big one because that's in the end.

  But what you also realize is that accounting is super sticky. And because we know that because it was so hard to peel people off their old and much, much, you know, older, less functional software. But then it does seem really, really sticky. And also what's interesting about the small business space, is that it both booms when there's things are going well, but even when things are going tight, there's still quite a bit of movement in sectors that go, and people moving from enterprise employment into doing their own businesses.

  So, it's been a very resilient business, but, you know, we're 18 years into it now, it's nuts.

  Enzo: Yeah, I, I do know that when things are going great, people have an accountant and they help understand the financials. But when the times are rough, then they need an accountant to help them understand the business even more.

  So there's always a need for having an accountant and the strategy behind growth is it's really no secret. I mean, you can go after one or two small businesses at a time, but really going after accountants who have a bunch of clients was really important. So you can get one person or you can get one person with 50 clients, which is really the strategy. And so I think that people who are just getting started out, understanding, you know, are you trying to go after the one or two businesses, or are you trying to go after all of them at once or many of them at once? That really is important when you're starting to build those initial conversations with investors, letting them know this is where you plan to be, or this is where you're thinking you'll be based on who your expected customers really are.

  Rod: It's also interesting when you're doing mass market stuff, which I had not a lot of experience in before, but like we only get like $50 a month from some people. So you can't afford to talk to them. Like if someone's up, you've taken all your money away. And you can't afford to sell everyone you've got to build automated selling systems when you're in the service business and you've got, you know, 100 really high value clients, you can afford to go and spend time with them. But when you're driving for scale at this end of the market, so we're much more like consumer in that regard. So a big thing for us was you know, we could not have people sitting there waiting for a phone call.

  And so we always were very early. You've got to register for support. Then we can have a queue. We can then do performance metrics on how fast we're getting back on the queue. Obviously that's really useful for AI and things because you're trying to triage before you get to it. But a lot of people say, "Hey, we can't ring you."

  Well, we couldn't afford, because the product's so cheap. So we had to train people not to expect to be called. And that was a really big thing, but we were very disciplined about it. Cause when you think about it, if you, if someone picks up the call, they've got no idea what you're doing. And they can't really help you.

  So we want to, you know, we want to do support for in-app where we know who you are, what you're doing. See your history. And then the best person can come back to you. So that was always a bit of tension, but when you do these very scalable models, you've got to be very disciplined around making sure you've got all the cost models, all that working for you.

  So yeah, a lot, I mean, we learned a lot through the process as well, but I think we were very brave and very consistent with our decisions. And again, being a public company, you don't we have to report every six months. So, you know, you feel very naked out there if you're not performing.

  Enzo: Yeah. Well, having in-app support is really great. Being able to click on a little question mark and find the answer yourself is nice. Having a really nice help center is great. So if you're thinking about "how do I scale if I don't want to answer questions by the phone every few minutes", having that information available online is super helpful. And being able to jump on a recorded zoom call, I have done that with Xero support where I'm sharing things on the screen only after we've gotten to the place where I know and they know that we need to look at something together as really helpful, but not starting with the phone call. I think it is really the best way to go because you're right. It does. I won't call it a time waster, but it is really expensive for somebody to be supportive when they're only paying you $50 a month and Talking about your investors as well. Like, you know, you've got investors to answer. You can't tell them that you've been spending millions of dollars on phone calls every single month, but I'm sure that they're also asking about those metrics as well.

  How happy our customers. Are you churning? Are you keeping the customer? What's the lifetime value? . Acquisition, all that kind of stuff and having really deep knowledge base online is a way to really keep your, your customers happy. Were there any other things that you had to provide to your investors?

  Or if somebody is thinking about, like, I need to prepare to go out and get investors and I need to have meaningful conversations after they've invested in, other than the metrics that we've discussed, is there anything else that people can prepare for those types of conversations? So that way they're, they're ready way in advance of having a challenging investor call.

  Rod: Yeah. Well, I've now got a VC fund now that I don't try not to be, do too much work on, but we see a lot of pitches coming through and it's interesting how they're not investor-centric. An investor, you know, doesn't really care about your business that much. They want to just know they can put money in here and it comes out here at a point in time.

  And so being really clear around, look, this is the opportunity. And also, like an investor, you've just come into the room, they've been thinking about something else, probably, you know, something, nothing to do with work. And you've got to orient them. So I always find that with investor pitches, and when you're talking to people, you've got to say, right, okay, "let me just paint, move out.

  Here's the universe, right? We're in here." And just like, they know nothing. And then, but also get them excited about the story. So they want to get engaged in those sort of things. And then it's like, okay, well now you're probably thinking about what's the competitive market. Have you seen this before?

  Here's a picture. Here's where everyone is. So we're top right because of these reasons and you would have seen these companies you've seen those. Yep. Yep So like that's always a really important thing and then I think like we're really early So, how do you know we're gonna be successful? Well, here's our success criteria.

  "So we're gonna take the money I'm gonna work on these particular things and if we do that, I'm gonna come back to you and ask for some more money. Is that fair?", you know, so I think I'm really flipping it around from being just about you and broadcast this amazing thing You That's, you know, maybe 30 percent of it.

  They actually, if you think about how you present to an investor from an investor's point of view, you make it super easy, get them oriented think about all the things they're going to know and just remove those objections. Because what, what I found was actually easier raising large amounts of money than small amounts of money, because professional investors have to put money to work.

  So if you can remove all the normal objections and make it super easy for them to go, "okay, well, this is one where I'm, it's not embarrassing for me to go into this. This looks legit." You know, you've got a pretty good chance. But it's very different at the big end of town from, you know, getting going with angels and then VC rounds.

  Enzo: So what are the normal objections? " How am I going to make money with this?" Or "this doesn't look like it'll be a moneymaker" or "I won't get a return on my investment". Is there anything else any other objections that come to mind?

  Rod: I think the big thing is ideas are easy, but execution is hard. So being really clear around how you're going to execute, you know, these are the unit economics is how we're going to test that these things work.

  And you know, all, all those things, you can definitely tell very quickly people that have done it before and think about it from an investor's point of view. And those that are just coming in and pitching this great idea that that they're obsessed about.

  Enzo: So I guess it goes back to having a few successes before you start going for investor funds.

  You know, you build something a few times, you, you've done a good job. You understand the venture has to make money and this is, and you've done it before. Not just, you know, I'm a brand new person who's never run a business and I have an idea. Here's the idea, because like you said, it's not just about the idea.

  That's just a part of it.

  Rod: Yeah. And quite often I'm going to get lots of people say, Hey, can we catch up for a coffee? And I'm like, why? How much do you want to tell me what you want from me and make it really easy. A normal thing is okay, you've got a two pager. And then say, Oh no, I want to talk to you about that.

  Oh, well, don't care. I need you two pager, cause then I can see quickly where you're at. And if it's something that's interesting, I might know somebody I can flick this onto who would be a really good person. So the thing with angel investing is that. Like in most cases, the angel investment isn't that successful.

  But still there's a lot of angel investment, right? So often it's people's first deal and it's people that are passionate about the vertical space and want to be encouraging and they may have made some money and, and feel like, you know, they can go and help people out. So anyone can be an angel investor.

  So you need just be really well dressed when you get those connections that. Someone is happy to represent you because effectively if I send a an introduction to someone I'm endorsing. So if it, if it looks really good and you can see like in a two page summary, there's a quick read, okay, I can get oriented on what this is, what the ask is, and hey, this is kind of exciting and I can flick that on.

  That's easy.

  Enzo: So describe the perfect two pager. I know you just said like, what is, what is this and what's the ask, but what else would you want to see on that?

  Rod: Well, exactly what it is. So you don't have to think because you think everything else but this and it comes on, you don't want to stop and reorient it.

  If you can just go right. Okay. Okay. I get what that is.

  Enzo: I get it... yeah...

  Rod: Just a little bit of credibility. And then, you know, a clear ask is usually a good thing. But you would have that, you have your deck ready because you want, if you do get a really good intro, it all happens fast. Do you want to be well dressed and ready to go?

  Enzo: So let's pretend that we don't know somebody named Rod who can recommend that we go talk to another investor. If you're not the right fit, I know that there's things like Y Combinator and so many other places that people can go. But where should people start looking for investment other than angel investors if they haven't built that network?

  How can they begin to build that network?

  Rod: I think every, every town's got a startup community and that startup community normally has angels around it. That's almost every town they have that. And that's a great way to just get started and you just start watching a few, right? Normally often there's pitch nights and if you're a founder, if you get to watch a whole lot of other founders pitch, and there's heaps of them online as well, you can just go onto YouTube and people do it and you'll see the kind of style and all that sort of stuff.

  So I think that's the best place to start. And then if you're in a particular vertical, I'd be looking at who are the industry leaders that especially people have had an exit recently. And they may be people you talk to because they'll know the domain space you're in and may have the resources to come and support someone else coming in.

  But definitely, you know, normally there's really good local communities and then you know, building a profile because people are going to quickly do a Google search on you. If you've doing a bit of thought leadership, if you've been in some news articles, if you're on LinkedIn, those will be easy ways to have that credibility when people go and check you.

  So I always think that, I read something years and years ago, it takes about six months to become an expert in something. When we did Aftermail as an example, I remember there was, well, there was a Gartner Magic Quadrant, right? We were this little startup doing an email archiving solution. And so I saw who was the analyst that was writing the Gartner Magic Quadrant for email archiving.

  And I saw where she was presenting at a conference. So I went to that conference made a big deal of getting to meet her, asked a question in the middle of the seminar. And then after that, when I said, "Oh, I just asked her that question", ended up having coffee and a lunch and then showing her stuff.

  And then within four or four or five months, we're in the Gartner Magic Quadrant as a new entrant. So growth hacking mentality is just what you do.

  Enzo: So you have to be bold. Go out and ask questions. Go have coffee.

  Rod: Yeah, and there's no rules. Like, you know, no one, people hadn't listed a startup, but we had to, you know, essentially Xero.

  We listed in our first year with a hundred grand of revenue. But that was the only way we could raise enough capital at that time to do it properly. There's not necessarily paint by numbers approach to everything. We're aware of how people do it, but I think there's growth hacking of your own business and startup as well.

  Enzo: I think joining startup communities is a really great bit of advice. And I would also probably say practice your pitch until you don't want to practice it anymore because you've done it a billion times. I have done different classes with different startup communities, helping them to structure financials so that they can actually go out and find investors.

  And I would sit and listen to pitches. And it was just like, so boring sometimes because they were talking about themselves and not about this, you know, The thing that they were building this cool idea that they had or the cool idea was getting just all screwed up because the language was all off and they hadn't really refined that language yet.

  So it was just not something that wasn't at all ready for somebody else. So maybe find your most opinionated. friend, somebody who's not gonna lie to you, pitch to them and have them say, "Oh God, that was so bad. you need to try that again because that was absolutely awful". And I'm sure you've you've heard some bad pitches in your time as well.

  So you might agree with that.

  Rod: Yep...What you said..

  Enzo: What I said..., yeah. So I know that building a business from I won't say small. You started with 15 million, but the business is huge. The 4. 2 million users worldwide right now. I know you're not currently in the business any longer, but you were there for most of the journey. And I know that your strategy and I don't know, just managing the financials or managing the business had to have changed over time.

  Was there any sort of points where you're like, okay, now I have to shift my mindset, or now I have to shift the way that I am in the business, or I bring myself to the business? Anything that you just were able to see, like from a 10,000 foot view looking in?

  Rod: Yeah, it was quite interesting. When we were a startup, you're a really small team and you're getting it going. And I remember as we got bigger and became a public company CEO. Like then you had to be really, you know, you could just change your behavior. So when it was just a small group of us, it was really loose and fun.

  And then you get to a point, I remember when I was like, "Oh, I don't really want to drink in front of the staff anymore". I'll just like, we do our own internal things, do our award ceremonies, and I'll just go home and have a cup of tea. I mean, usually because I'm exhausted, but you know, you do become different in it.

  And I think as that CEO, senior leadership team. You've got to, you know, you realize that you're a, you're an example to a whole lot of other people. So you have to live the values and you know, make sure you're always driving the good culture. And another big thing is as a founder, you tend to want to do everything yourselves.

  And I remember being in Hong Kong actually, and we met This was when Stripe was first getting started. And we were at a conference in Hong Kong and I was meeting this business development people. So I must've been mid forties and the business development people are late twenties. And I'm like, I have nothing in common.

  And actually , I don't have to micromanage business development meetings. I need to hire young business development people that'll probably go out and go dancing and drinking with their peers, cause that's the stage of their career they're at. Yeah. So that was really interesting, realizing that there's a natural life cycle of a founder in a business.

  And we were so accelerated that all that happened quite quickly. And it's funny now, like people, which seems weird, were nervous to meet me and I'm like, "what the hell, what's that about?" But but you get, get put on a little bit of a pedestal when you've, you know, the business has got this big.

  But yeah, so it changed the whole time, but it's good fun. And I think most people are fairly self aware of those things or you know, good friends will poke you and say, " , here's the next thing thing you need to do".

  And I remember one of the things I was most proud about.

  So we had an amazing leader of our New Zealand business, Craig Hudson, and he was a very large, powerful man. He was in our New Zealand rugby sevens team, our national team. So, and he's a big unit, he's 6'6" or something. And he he had a really interesting mental health strategy. And at a couple of our Xerocons, he, you know, started revealing a story.

  And you know, the whole audience is bawling their eyes out. It was so interesting. And then we ended up after I left really leading and mental health and supporting our accounting and bookkeeping communities, as well as our small business customers. And it was one of the first times I'd seen a large business take that on.

  And what I love is that didn't come from me, that came from inside the business after I left. So it wasn't that the specific values keep going or specific programs kept going. The business kind of has its own life. It's like, you know, birthing a child. You have some attributes, but it's going to run around and do its own thing.

  And I was so proud of seeing the business had picked up its own cause. And we were, you know, for a few years mental health was a really big thing that was called everything we did at Xero.

  Enzo: No, that is incredibly important. And I might be a little bit sad. I mean, joyful that I built something so wonderful that can run on its own and be its own entity and, you know, birth this amazing thing, but stepping back, I might be a little bit sad that, it doesn't need me anymore. It's like a parent, but their child doesn't need them anymore. So you're sort of proud, but sad at the same time. But I,

  Rod: No sadness at all! I'm just proud, and then do other things. So now I'm doing a lot of philanthropy doing a few fun businesses I've always wanted to do. And different spaces.

  I try to avoid SaaS 'cause I've done that. And you know, trying to make an impact on my local community. So no, I think there are people that get it, you know, just remember the good old days. But I always think, yeah, I think personality, right? I'm done. I'm proud of it. It probably goes a bit slower than I would like, but it's much more resilient.

  It has much more capability. It's delivering a lot of economic security to our team and to our partners. And I'm just proud of it. And then that gives me a platform to do other interesting things.

  Enzo: That's awesome.

  Well, we only have a few more moments. So I have a few additional questions for you. Going back to the question about Sort of growing into the role as a business changes, like your CEO at the starting point, now your CEO in the middle point, CEO at the end point, you've had to grow as a professional and Approach the business differently.

  Did you have any mentors or anything? Anybody who helped you understand now you need to change or now you know, this is how you go from 1 million to 10 million to a hundred million to, you know, whatever. Anybody that helped you in that regard?

  Rod: Always our boards, like having good people that I liked and you know, had a good straight, honest relationship with.

  It wasn't one. In my case, like New Zealand, there's not many people have done what I've done, so there wasn't anyone to follow, but there's some people that have done some great stuff that I've got to know and always listening and curious, but I think the consistent you know, group of people that have helped have always been our boards and, you know, they're going to have you have your most honest conversation because they're reviewing your performance , you know, whenever we have our board meetings and usually really encouraging, but like if you've, if they've asked you for something for two or three board meetings and you haven't done it, or for some reason, there's no excuses.

  It's like. You know, you haven't done it. So you don't want to be in that position so you get clipped around the ears a few times and you don't want that and you go on that. But yeah, the consistent group that's always helped has been our boards and we've always had amazing people, but again, our boards aren't jobs for life.

  So in the early days, I was quite active around making sure we had the right chair and our first chair, Phil, he was incredible with entrepreneurs. Then we had a retired CEO from a bank that had scaled up to a thousand people. Then we had Chris Liddell , he was the CFO at Microsoft and General Motors.

  And He gave us really good news. U. S. perspective from a New Zealand. He was a New Zealander, but operated at the highest levels of U. S. business. And then we had Graham, who had been at Salesforce for many years and Just a great English gentleman and really understood growth internationally and raising capital.

  He was amazing. And and then David though, he's our current chair and just this, just amazing high values, calm, but strong person. And he was the one that led the recruitment of Sukhinder. So we didn't have the right to hire Sukhinder five years ago, only by getting to where we've got to, we're able to hire an amazing person like her.

  Enzo: I love her. I'm so glad that she's with Xero. She's great.

  Rod: Yeah. And she's built an amazing team. Dia and the other people below her are just incredible.

  Enzo: I've met with so many different software companies not just Xero. They ask for advice. "What should we do? How can we build something that is great?"

  Great. And I it's crickets with everybody with her a year later. So many things have changed so many new features. I mean, I feel like if they took everybody's requests or desires and they synthesize them into something great, the Xeros now going after. So I really applaud her ability to make that vision a reality.

  Rod: Yeah. And culturally for us, like we're like New Zealand and, and Australia and America have quite different values, sort of core things. And, you know, what I love about the US is everyone thinks big and it's just get it done. It's far more direct than we are. So, you know, that's the change. And what's been amazing around Sukhinder, she's been able to bring us all the best of that big international thinking, but also drive culture change into a more.

  You know, and just to the scale that we're at at the moment, like it's serious business. And we threw out in New Zealand dollars, 500 million of profit last year. It's like what, you know so yeah, it's been, it's a case study of continuous change.

  Enzo: Yeah. For sure. I can see that. So I have two final questions.

  We only have a few moments left for our SaaS founders in the audience. I'm sure they're wanting to know this, but if you could give one piece of financial advice to a SaaS founder starting out today, what would it be? And for me, I love having these types of conversations. It's great to reconnect with you, but there are so many other people that I can connect with.

  And I'm wondering if you have any ideas of who I should connect with next. So I'd love to hear the answer to both of those.

  Rod: Yeah, I really like the enterprise space for if you're early stage, like SaaS is a compelling model. And with enterprises you don't have to build a whole sales machine that sells to millions of people on day one.

  You can build a product by getting a, you know, 10, 20 good customers, and then scale and raise capital. So Enterprise SaaS is a really repeatable place to do R&D by acquisition, build up, get your capital, and build a successful business because enterprises have to buy you. Large software enterprises have to buy smaller ones so they can monetize their sales teams and have really good products on the shelf.

  So that's, for a technology entrepreneur, Enterprise SaaS I think is really exciting. And in terms of who else to meet next There's some really good add on providers. I think the big ones that have built an add on around the ecosystem is a good perspective. So, you know, the Dext guys in the UK, it used to be Receipt Bank.

  I'm a bit out of touch at the moment, but that's a different type of play, which is really relevant at the moment. So like, how do you build a business alongside Amazon Merchant Services or alongside Shopify? I think learning how to partner with people that already have this gravity is really interesting.

  So maybe one of the founders of those businesses that are leaders in the ecosystem would be interesting.

  Enzo: It'd be interesting to hear about their acquisition. It was previously Receipt Bank, then they got Dext Precision, which was Xavier Analytics. And now they have another software too,  so it would be very interesting conversation.

  Well, Rod is really great to reconnect with you today. We're right about out of time. So thank you for joining me. And I hope to be able to see you again soon.

  Rod: Right. Nice to see some familiar faces on the list there. So hi everybody. And bye.

  Enzo: Bye!