Xero Revenue, Valuation & Funding (2026)

hello everybody my guest today is Steve vamos he leads the global growth and performance of zero with more than 30 years experience in global technology and digital media he's worked in leading international businesses including Apple IBM and Microsoft Steve you ready to take it to the top yes I am glad to see you all right so zero kind of unique Australian b2b saff story in the SMB space for people that have maybe not heard of you which I imagine are few and far between tell us what you guys do and and are you a pure play SAS company yeah look first of all I have to clarify a little born in New Zealand we are New Zealand was it matters a lot to and New Zealand stakeholders to always remember that yeah and it really started in 2006 with our founder rod Drury and rod had a vision for taking what was really the desktop cloud or desktop accounting application and moving it to the cloud so 0 really grabbed hold of that listed very young in its life and has grown since with the investment by some major US technology investors as well as a lot of private individuals and we now have scale to become a global business with operations around the world we focus very much on the segments of small business where typically they employ maybe one to a hundred people ultimately what we've done we innovated in the class I'll give you a couple statistics in Australia and New Zealand 40% of small businesses have been penetrated with cloud accounting we are the major player in Australia whereas the rest of the world that penetration is around 20 or less so this is a case where a local museum with Australian innovation has really led the adoption of new technology by business so very very proud of that and now very excited to be taking our innovations to the UK USA and many other markets around the world and runway I want to start now and then work backwards so run rate today is about what well probably the best way to look at that we've got 1.6 million subscribers around the world paying paying small businesses that's right annualized monthly revenue so if you end your lives on a monthly revenue at 12 months we just am RR is the language we use in SAS we're about 600 million New Zealand dollars which is around 450 million u.s. dollars and we're sort of on the verge of we've guidances that we are training very close to cash flow breakeven okay fair enough very good so just to summarize that 1.6 million SMB customers around the globe around the country on the world you're doing about 450 million bucks in terms of u.s. dollar run rate today that would mean you're doing about 37 point 5 million dollars per month and each customers paying on average in terms of our to about 23 bucks a month something like that yeah yeah that's pretty good okay so I want to get more into your head here when did you join the company what year I joined the company nine months ago I took over from the founder Roger II and prior to that I did have about over a year of working with write on the team so I guess when I stepped into the role rod knew me well and he was very keen for me to do this and essentially you know rods a visionary a great founder who essentially looked at all the things I was helping him with we're about scaling a create global tech company much along the lines of Apple and Microsoft and other companies I've been exposed to it's really a lot of common sense stuff but it is management discipline that you're talking about and I'd said to me look I see what we need to do to grow the business to where it can be you should do it rather makers I'm more interested in doing the cool stuff or any innovation and your bid new technology and so I stepped in nine months ago and I've been leading the business the journey that started with me as an advisor with right interesting so that's hopeful to understand when did you join the company in any capacity would be almost exactly two years ago okay about two years ago here's what here's what I would love to focus on on this um at this price point 23 bucks a month you typically and I can cite constant contact we can cite tons of examples where at this ARPU churn is almost always an issue and it's usually because well these comings or going out of business they're SMBs you've managed to drive pretty significant growth year over year based off your public filings in the SMB space it's not like you're aggressively moving enterprise from what I can tell correct me if I'm wrong but what is your turn today and how have you managed to keep it so low yeah well look you know we do we do talk about churn and out very fortunate haven't got a lot of churn rate I think there's some reasons for that on it on a monthly basis our churn rate is I shall just write think what is it me actually look it's around a 1 percent can I earn per month so that gives you an idea on an annualized basis I think there's some really important things to understand about our business model we really focus on that segment of small business where they're engaged with accountants and bookkeepers okay it has two things two effects one is you engage the customer they're supported by their accountable came in and that was a difference that zero brought to this face was the collaboration between the accountable keeper and a small business person where they see the same data every day they can have a conversation about what's looking good what's not so that's sticking that creates a real stickiness in the customers engagement with zero but also through having a bookkeeper I think that's an important thing to recognize my understand would be that we would have the lowest churn rates out there in our space yeah I've interviewed a lot in this space yeah I would I would agree with that this is one of the lowest I've seen now just to try and pull a nugget out of here for my audience are you selling almost exclusively through kind of website does it's almost author resellers and the reseller is the bookkeeper we we look at it we sell a lot throughout partnership with accounts and bookkeepers we don't call them resellers or think of them as resellers so the way we're typically engage with accountant bookkeepers say look we want to help you transform your practice in your business to be more efficient and also to be over the for you to free up time to advise small business rather than crunch the numbers on small business so we have a conversation with accounts of all papers and we have tools to help them be more efficient and in that conversation we say the core of that is for you to bring your clients onto the zero platform so they work with us to do that we support them in doing there at the same time we do go direct so we all could see there no kickbacks to them when they do that and that what the way it typically works is they get a margin or a discount it's more a discount on the price and then what they will do in most cases you on charge subscription fee for zero today customer so let me ask you question because a lot of companies have this issue and they have white label partners like this if you give I'm gonna say that I'm just calling Nathan's book keeping my relationship with you and you're giving me a 20% discount let's say it's 15 bucks month for me instead of 20 for everybody else if I create marketing channels spend money on Google AdWords etc I can essentially and go direct to the consumer there's SMB I can essentially undercut you on all the other channels cuz I have a cheaper price point than what you have listed if they work direct with you so how do you make sure that that conflict never exists look it's I'm not to follow you as well as you'd like but I can read I can rephrase her if you want let me sell so we go we would sell direct to small businesses and typically the small we have a price for that and it's on our website depends on what package you buy we also offer the same many of the same thing with all the same things through our partners the partners then retain or get a lower price by virtue of the discount for them signing up to be a zero partner and also working with us to a plan to adopt bring as many of their customers onto the platform as possible in terms of so I think what you're heading to is does price competition or channel conflict caused us a lot of problems in our business the answer is no okay the reason why I think it doesn't is it still really early days in the industry you know adoption rates are low for cloud accounting and cloud let's call it cloud small business so you know we don't really see you know we don't we have competitors who price a lot cheaper than we do and I think what's kept us strong is the fact that we were first in market in many many places around the world we do go through the counts and bookkeepers and we talk and we build that partnership so it's not about price it's about the value that customers gonna get out of this new way of doing things so at this stage we don't see lots of channel conflict but our priority if you said to me what's more important to you see but say those account of bookkeepers working with them and going to their small business clients that's our focus yeah just to be clear the 1.6 million customer account you gave me earlier that's not the book but that's the actual and that's how many small business are working with you yeah subscriptions you know small business records so so I want to get in your head a little bit about testing new channels you know constant contact really hit a brick wall after they were very aggressive with kind of radio ads and things like that the stock markets in the US do not reward them when you look to their p/e ratio relative to other SAS companies I'd like to understand how you think about testing new channels in a programmatic way and doubling down when you see positive signs before we do that though tell me where you're at today so to get a new customer paying you 23 bucks a month what's your fully weighted cat look like so low he's the way we talked about we publish LTV lifetime value of a customer to CAC ratios okay as we all do as we say we calculate once you sign up as a subscriber we work out what the value of that subscription is to our business and clearly that's a function of the gross profit that we make on on that subscription so Roger you an 80 or 85 range and we've seen nice trends on on that that metric we're sort of in the last six months we try to kick up of another percent to about eighty three eighty three percent okay ladies three percent the last half so so that's really important just so that continuous efficiencies that's a driver churn is a big driver yes well right now zeros over all blended global LTV to CAG is in the range of six or seven types right so for every dollar we spend we get back six or seven bucks which and obviously in Australia New Zealand and more developed markets we've got a higher LTV to check in new markets it's lower so here's my question for you isn't it dangerous to in a purist way look at LTV to CAC especially in this situation I'll tell you why your turn is so low right so if you have one percent logo turn per month and you do one divided by 0.01 that would give you a lifetime value of a hundred months or over eight years at 23 bucks a month right even multiplied times your gross margin of 80 percent in your gross margin LTV of like $1,900 if you divide that by six to back into a CAC the CAC would come out to what is that like 300 bucks but that would still take you about a year and a half or almost two years to recover that on 23 bucks a month so do you have do you have the ability to be patient on how long the payback period is because you have health you know what the cohort is gonna do over eight years yeah I think we do and that's because as we've grown so we're now at the point where as I mentioned before we hit another major milestone over zero which is cash flow breakeven now that's Congrats that's fine it's a huge milestone it hasn't happened yet but it's it's um our outlook you know outlook statements which is taken very seriously by the market yeah though that's that's where we're heading so that's really exciting for us because it says now that we've proven it can fund itself and what we see is that because of the blend of developed and and growing and we've got the markets where we've really achieved penetration and efficiency and the markets where we're still investing our challenge is to balance those things so that overall our financial metrics are good I think what you're suggesting is there's a the the big question we always face is how much more should we be investing given those very attractive returns and how fast you're investing to do that so I think that's the big business question we have to answer for ourselves we constantly look at that I would split it this way the guidance we're giving or the outlook we're giving says excess cash the company generates going forward as we scale will be reinvested in the business because you know that's sort of return right you just have to yeah are you right now in any acquisition talk or take private talks with a company like a vista equity or any other big private equity firms look we sorry the answer is no we the way we're looking at acquisition is more us acquiring other businesses at least 300 u.s. million dollars through the issue of capital lights and convertible note so I should say convertible notes and what we're doing is really looking at opportunities not just to build and partner but also to acquire new businesses that come into the portfolio and really meet our strategic needs and priorities an example of that lies I'm not sure where we acquired hub dark a Canadian company great Canadian business it's a number of years old a zero partner who I'm helping the automation of the process of bringing documents and data into zero to a streamline the processes accountant bookkeepers use to obviously update the accounts and do what they do so yosef rate well I should I don't know it was yes sir to you interview yeah yeah yeah he came up they came on the show about about a year and a half ago with offices in Toronto in Australia and we're doing like 1.6 million bucks an AR across 1,100 customers at that point yeah well the to Jamie's who are found at the joint CEOs and founders are now part of the 0at team and we're really excited about having him on board did that Proform I worked out I imagine you said okay we've got hub dock if we crossed out across 1.6 million users X percent are gonna take it up I mean that Proform I pan out yeah it's all about that it's it's about three things one is driving the growth and adoption of cloud accounting which means showing accounts and bookkeepers the way to driving you know their practices more into the cloud and bringing their small businesses online it also is one that helps us in the expansion of 0 from you know doing accounting in the clouds and really what we are which is doing business in the cloud so the connections that hub dot facilitates with suppliers banks and others and then the streamlining of the import of that data and their content into Xero for processing is something that's really attractive to us as a platform company and then finally we acquired great talent in the the Jamie's and their team so battery here about 20 people I think write a lot more than that now sorry they were yeah back when they came on the show they're about 20 I'd say they're about a hundred people now when you bought them what were they at um look no much lace so okay this a few months ago okay very good so have you um do you have a good outlook yet on what percent of your 1.6 million customers you think are going to upsell into the hub product as well not really nothing sort of specifically talked about today but certainly now we've had our approach has been very much to let the Jamie's and hub dock do what they do and do it well and we're also working closely with them to look at exactly that question as we go forward in our plans for next year and beyond we've made assumptions and our assumptions are I think hopefully conservative but we we can see a real opportunity to attach that quite broadly yeah and just to be clear that was a fairly healthy opposition I think it was reported 70 million in cash and equity right something like that yes yeah interesting the if you if you in an executive team meeting next week kind of forced your executive team to say okay guys let's assume we don't add one new customer and our strategy moving forward is expanding wallet share across the 1.6 in other words how do it from $23 ARPU to $30 of 35 is it really going out in acquiring additional kind of hub and spokes like hub dock things that sm bees need to run their business in the cloud it's about it's about three things and it is the conversation we have not so much that we've got two dimensions we see so much upside and subscriber growth that's our want to be going to be focused on that but also you want to go deeper not just figures for financial reasons but fundamentally because once businesses are in the cloud we want to do more in the cloud so we look at new products so we launched our projects and expenses products last year we look at partnering so we've got payroll solutions that we build we partnered in the US with gusto to provide a better payroll solution for our US customers and then we look at our position so the way we will look at our position is to say in the life of a small business once you're doing your invoicing your your purchasing and your accounting in the cloud what are the other things that you really want to do now we're fortunate and we have 700 companies building applications on our platform using it leveraging our api's including I've dug that's a fine hub dock right luckily 50,000 developers so we always already have a really wide range of application of solutions on the Xero platform but we will look at acquisition into certain areas where we think that that integration with Xero and a much deeper level makes a lot of sense so we are very clear now the other thing is that I think it's not just applications actually services so two of the areas we've been doing a lot of I call proof of concept that we see real business opportunity in our areas such as payments and lending so let me ask you a question can I make a prediction here because you see you see Intuit just do this with smart sheets you see Salesforce do this all the time they use their app exchanges as a way to test partnerships and then usually your BD teams are spending your time seen if you can buy up the highest performing app so you just told me that receipts expenses this might be interesting for you guys receipt Bank ranks very highly in your app store right now can I make a prediction you're gonna acquire them in the next two months well I think you are absolutely right in saying that our app ecosystem is a great way for us to see what customers are valuing and the applications that they're using I think what we have to do and look at you mentioned a bunch of great companies there we have to be smart and mature about our desire to have this platform which is really really fundamentally important important and there conflict that happens when you start to acquire into that because this 100 percent yeah I'm you know the the acquisition of a hub dock you're right there's overlap there with receipt Bank you know we're really clear and had good conversations with all parties about what we're trying to do and we I want receipt thing to continue to to flourish I also want to make sure zero as a technology platform also has the best of what's possible in the way that we ingest documents and data so you know that it's one of those things where you you have to accept that from time to time you you cooperate sometimes you know you complete so about that yep last question here you guys win public fairly early this is before your time I think and I believe it was 2007 I think a fifteen million dollar IPO on the New Zealand exchange right that's right the 300 million convertible notes you just raise I don't I'm not actually familiar how does that actually work after you've gone public even even before that you know you I think you guys raised a hundred million from Excel and ten point eight from matrix capital in 2015 how do you raise capital from traditional VC after you're already ah well in terms of well it's a little bit tricky to answer that because we're not not currently looking to raise capital from traditional VC no but you did I'm saying how did you how did you do that the look that's before my I thought I think rod would probably have a good answer to that one but I would think that knowing right and the way that the board of the company that um you know because the IPO happened really really early I mean super early you know there's a share price was $1 yeah and so I think rod being he's a very inspirational guy I think he would have sold Eve the vision internationally to all those key tech players and did it very very well so you know ultimately it comes down to the founder and the board having the credibility and the vision that these you know really shrewd smart and experienced investors can relate to and many of them didn't I think they've been rewarded yeah no I'm just curious actually tactically how they do that into a company already listed on the New Zealand stock you can I just don't know actually functionally how they would how they do that yeah well typically what happens you list and you issue additional shares but that still leaves you with a significant you know shareholding in the hands of other yes so they sold the at what they kept maybe they could only sold 10% they then sold extra little chunks to these traditional us-based VCS over time you would have had investors private transactions between shareholders who are in early who would have made this year's available for sale and I'm not sure whether we issued more equity along the way but I'm pretty sure we would have actually we did so because what I need to do to answer your question really well would be to have a look at what happened to the actual you know capital base how many shares were at universals back then but I think to work out how much of it was through shareholders transacting versus the issue of your capital or your share so I don't have that sort of a top of mind that's okay we said the Cvent folks on they're doing about six hundred million bucks an AR are you guys are four fifty who's which kind of b2b SAS coming that's not named sales for us you think it's a billion dollars in ARR first can you guys do it solely focused on SM B's if your dollar price point well I would certainly hope so I can't see why not I mean you look at market penetration it's still incredibly low hmm what do you put your penetration out right now a percentage well I think for the industry its it around 40% in Australia New Zealand and less than 20 everywhere else in the world okay we can do this under 10% and it is Canada and Australia are very similar markets in many respects you know us a little bit more more penetrated because you have ensured there is their home base so it really just did you know this tremendous opportunity in terms of subscriber ads and also tremendous opportunity getting businesses do more business on the cloud platform mm-hmm last question here team size today how many people we have about two and a half thousand people are in the world oh god okay driver honored very good all right let's wrap up Steve on with the famous five number one what's your favorite business book I'm absolutely obsessive about the importance of the way teams think in their led so I'd say the five dysfunctions of a team by Lencioni is a must read for everybody and then all the other books I love it kind of related to that good boss bad boss by Bob Sutton that's a beauty yeah number two is there a CEO you're following or studying right now I just read such a Mandela's book and there's an old Microsoft D I really I'm really pleased to see how refresh sorry yes I should own thoughts there from searches so I'd say that's the most recent and relevant one for me number three what's your favorite online tool for building your company it has to be doing what we're doing here I mean I'm on here awesome all day long so I live I live online talking to people through through these tools number four how many hours of sleep to get every night I try and get out but it's been seven of laeta founded in this role as soon as I do slightly wake up on the lake so and Steve what's your situation married single kids a beautiful partner about two grown-up daughters and I've got six grandkids holy Mack on how old are you 61 61 alas 61 years young I love that last question what he was your 20 year old self Neil yeah that's a hard one look there's so many listen I wish on used in a little on you how little you knew guys there you have from Steve again really good active in zero called maybe two years ago took over a CEO role call it you know nine months ago now focused on obviously growth twenty five hundred people all around the world good penetration New Zealand caught forty percent but maybe only twenty percent in the states and even ten percent in Canada they broke in four hundred fifty million bucks in terms of run rate across one point six million customers SMBs mainly paying twenty twenty three bucks a month one percent logo turned per month L TVs you know north of call it nineteen hundred that's gross margin l to be so healthy healthy lifespan they're spending up to call it you know six or one-sixth availed to be on CAC as they look to go into new channels and continue drive growth not only through new sub ads but also acquisitions like the sixty million well 70 million total deal with hub dock recently really funding a lot of that out of the 300 million dollar control notes they just raised steep take us to the top Thank You niacin