How Xero CEO Rachael Powell grew Xero to $1.7B revenue and 4.2M customers in 2024.

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...