Speaker: Surviving Small II: Changing Process
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An apology to Rod. He had sent us a more chatty post which he had wanted to start with before getting into this more detailed description of what XERO can do to assist small businesses.
I can speak from experience that what he says about transforming the way you do business through application of better/faster/more transparent accounting disciplines helps hugely.
When cash is tight - as it is these days - knowing exactly how big a shortfall to expect. How much us outstanding and to whom and exactly how much you are spending is vital.
Rather than an advertorial for Xero what might be of more/equal use to small businesses is to hear Rod's tips and techniques for maintaining such a high PR profile for him and his company. I find that is almost as impressive as the product itself.
But we’re keen to hear from you, so if there’s anything you think we’ve missed or if you have some insightful small business tips please join the conversation.
Are you paying royalties for any ideas gathered from PA readers to include in Xero ?
this is music to my ears ...... so many small businesses set up systems that work at the time they are set up, but then never get revised as technology, or something else changes. It is very easy to get stuck on working in the business rather than on it.
At the time I (re-) established my company 2 years ago, I set up all my accounting systems along the lines of the system that I had in place when the company was first set up (its original incarnation was from 1997 - 1999) - and they were clunky and time consuming. I would do them because I had to ... but I really resented the time I spent on them and was always fearful of inadvertently making a mistake This time though I wanted a "grow" a business rather than it just being me on my own. So I was quite fussy about finding an accountant that wasn't going to take a compliance based approach to my accounts, and the ones I signed up with (shall I give them a free plug too???? :-) ) recommended Xero. That was one of the best decisions I have ever made! We are not a cash- based business, so I dont have a need to do things daily, but we do have a weekly finance and admin session every Fridays to review our financial and operational position. I feel much more on top of this than I ever have in the past, even when working in large organisations with supposedly sophisticated financial monitoring systems. We have remained right up-to-date with all our tax payments and have a really good idea of what our cash flow will be for the next 6 months (even in the worst case scenario of us not getting much work this year!) We are growing slowly (the way we want it) and have some strategies in place for what we want to be doing in a years time and beyond.
Simon - personally I think that it is great that Xero maintains a high profile for the company!! It is a great product, making fabulous use of newly available technologies. And I understand that Xero is having some success at sales in the UK and Australia. In my book that gets two big ticks - one for innovation and one of exporting. Isn't this what we want for more NZ firms and shouldn't we be celebrating their success??????
I use Xero and find it good - -but if you are not particularly accountancy-minded it is very helpful to have an accountant that is set-up for xero.
I use Lock and Partners and they make the process easy for me - -but it would actually help me if the system had a basic primer on the tax and regulatory requirements for small business so instead of just being a bookkeeping tool it could act as a guide to business - offering strategy, case-studies - recommended levels of expenditure - legal maximums - definitions of terms. This seems to be what an internet based model could offer over a cd-rom based MYOB for example. Even if it was just directing people to the appropriate sites where you could find this out.
I understand it could never replace accountant advice - but putting up simple interpretations and best-practice opinions would make it very helpful indeed.
(disclosure - I own a tiny portion of xero shares - valued at an amount less than my overdraft - -but it is probably best to state that in this funny gray area of 'advertorial discussion' - - - -
I bought them because I figured if Rod Drury - internet entrepreneur extraordinaire was backing Xero with not just capital but also by being a full time CEO - then it might go gangbusters..... I'm still waiting ;) ....)
Isn't this what we want for more NZ firms and shouldn't we be celebrating their success??????
Rose - as a client of Xero and a recommender of Xero to my clients I have a vested interest in Xero's success as well.
My point was that if NZ small businesses had a choice of either replicating Xero's PR and marketing or implementing Xero software, I know which one would have the greatest impact on their success.
Sorry this article was out of step.
Great idea to do a profile building story. I'll write one of those over the next week.
Funny thing is we don't think we've started marketing Xero yet it's just been PR. In small markets like NZ it can be a very effective way to build buzz.
Hi Simon, may I respectfully put a different point of view - -
I think perhaps Drury's profile comes from his business success - not the other way around.
His track record - selling a company for a reported $65 million - -is what makes people listen rather than marketing.
If anything I would say the marketing of Xero has been minimal - -most people have no idea it exists.
This is an area that Xero really needs to improve I think - amongst internet-savvy people and accounting professionals it may be well-known but amongst the thousands of small businesses - plumbers, chippies, fish and chippies - -that need to pick it up for it to succeed I'd say it has a tiny profile.
Also the fact it is all online may make less internet savvy people feel it is mysterious and or difficult. If it was marketed as being simple, clear, easy accessible this may help.
The trial period currently offered isn't a bad idea but you need to import so much data to make it worthwhile that the time involved makes the free trial quite expensive.
Case studies may be more useful like the video tutorials that are currently there but with assumptions you can play with - -so for example you could have a profile and dashboard showing how it might work for:
A retail food business
A retail business
A service contractor like a plumber
If a targeted marketing campaign tried to get 10% of, say, Master Builders to use Xero that could be a goal that if successful could be rolled out into targeted campaigns to get other trades carried out through the organising bodies....
This divide, target and demonstrate benefit approach is probably quite good for gaining users in a sector by sector manner....
"may I respectfully put a different point of view"
You may and it was well made. You are right about the marketing efforts of Xero being low key, as Rod has also noted. I should have stuck with PR.
Rod leverages his profile for the benefit of Xero well - this is actively worked and managed. Although very very few (read almost none) small businesses owners in NZ would be able to lean on a success story like Aftermail to generate media attention I believe some insights on the process of PR and profile raising from Rod would be very useful.
In some cases the momentum generated for a company in this area (ie leading to sales) may be more beneficial than having an efficient financial backend. While poor cashflow will kill a small business (and Xero can help bring clarity here) I'd suggest that it is in sales that most SMEs struggle.
@SimonP well spotted that we need to do marketing.
We made a conscious decision not to do marketing (yet) because marketing to small businesses is hugely expensive and we think ineffective. We could have blown a lot of dough with minimal results. We did test a few things like newspaper and radio and didn't get a measurable return.
Like most new products we had to initially start off with hand to hand combat - direct selling - to first reference customers and to gain customer insights.
Then we had a stepped approach to light up accountants. We need them as gate keepers and validators. We also need accountants so there is expertise and capacity in the market when small businesses start coming in on their own.
We firstly sold with accountants, so that they see the benefits and we build trust with them. So we asked them to provide some of their customers we could sell to.
Now we are focussing on enabling the accountants channel to be able to sell themselves. That is now starting to work.
We also need to build a brand so that the 10000s of small businesses think about Xero. MYOB have done a great job of many years being the brand you think of for accounting.
Our strategy has been to put our resources into piggyback marketing with partners that are already spending big $ talking to small businesses and have direct relationships with large numbers of customers. These include banks and carriers.
If we are successful in that, you'll start seeing Xero alongside already trusted brands, helping them tell a more relevant story to their customers.
Hope that makes sense.
There’s already some pretty good tips at Rod’s old blog.
Rod, the SAAS model you've started up with is about the worst business model for cashflow in it's opening years, by design - do you think the capital requirements to cash fund such a business model through it's opening years make starting one impossible in the short-term economic environment?
Yes. SaaS is huge up front investment.
You need to be able to fund the revenue ramp, as you only get a a small amount each month, rather than lump up front revenue. You may also be educating the market which takes time.
As well as a great product you need a big investment in back office processes. The server needs to runs the business so you can be a low cost operator.
You need bizdev skills. Getting bank feeds for us was a massive investment in time that most small companies just don't have
You need a big team. Dev, QA, Customer Care, Sales, Finance, Ops etc etc. We thought 50 pax. AfterMail had 23 and it wasn't enough to do things properly once we have 130 customers and were operating globally.
That is why we had to raise a big chunk of change up front to do it properly. That obviously creates a barrier to startups. So we are starting to see some other accounting systems on the web in the US but they are 5-10 person shops with a fairly thing feature set and minimal biz dev capability and back end process support.
In the SaaS world access to capital is a major component of your strategy. It is a key part of Xero. The need to raise that capital on an idea was why I pumped my personal PR up during AfterMail as I needed to get from the tech pages to the business pages so people would give us money.
Entrepreneurship is a serial activity, each experience hopefully give you more capital, networks, and the platform for the next thing.
So what should you do if you want to build a SaaS business.
There will always be exceptional companies but my advice would be to focus first on Department or Enterprise opportunities where there is an opportunity to get lumpy deals up front to help with cash flow. 10 companies paying 10k a month and an implementation fee requires a much smaller company than 10,000 customers paying $10 and you could possible bootstrap or angel fund that.
Doing a public company is scary fun but when you want to go big your capital strategy is integral to your business strategy.
Excellent response Rod, thanks very much. This struck me in particular:
As well as a great product you need a big investment in back office processes. The server needs to runs the business so you can be a low cost operator
So you need to invest in the systems that run the business, alongside investing in the system that IS the business. I guess having a "business management" tool like Xero as your product helps in that regard!
For example I've had an idea floating around, it would be part-targeted at the Enterprise level (two segments off the same platform) which, you're right, would help ramp the revenue earlier on. But raising the capital to fund a business that's all cost up front seems even more daunting/unlikely in this environment. That lovely cash-stream-off-low-marginal-investment of the long-term is not on most financiers mind at the moment I would guess.
To the subject of this post. I wanted to share that opportunities come from rethinking processes.
In our space it seems crazy that accounting for 100ks of small businesses is so broken - so changed the model.
This is a two edged sword.
1. You have to convince people to change their processes - which can be a big sell.
2. The rewards for that are significant if you can make this change because you intrinsically get significant benefits over what was done before
AfterMail was similar. It seemed nuts that email wasn't in a relational database so you could ask 'what has anyone in my company said to that company lately'?
Approaching seemingly mature markets with a different approach can allow you to create exciting opportunities with minimal capital.
AfterMail was a low capital business. We funded it by not paying salaries for the first year to founders. We also presold 10 licenses for 20k giving us $200k of potential cash when we delivered. The deal was something like
1. 20k for unlimited use (say that might be $50k of value) if we has a real product
2. No maintenance for 2 years
3. No cost for implementation services - it was a sunk cost for us and we knew we'd need to do it anyway
4. Pay us when you're happy
This de-risking was compelling enough for us to book $200k of revenue early in the business and obtain our first reference customers.
Thank you for polite and intelligent points.
I should have also mentioned that that my point of view did not in any way diminish the point you made about the possible benefit of a story of how Mr. Drury factors PR into the equation - -I would also be very interested to read something on that and you are right there are few businesses who have that option but it is done well. You have to use everything that you have to hand to make business succeed.
Thanks for the thoughtful reply.
I would still be interested to know what you think about providing business help as part of the service - I think that legal and best-practice advice or guidelines or links to information could be an easily incorporated service that would make this a true internet product - as opposed to internet based bookkeeping.
As to marketing -- the approach you outline of piggybacking makes great sense and is in essence what I was suggesting with an approach of say targeting Master Builders through the professional organisation by tailoring a demonstration of the product and its benefits to that particular sector and then if such an approach is successful targeting other business types and sectors... in that way you would piggyback on the organisation's existing network.
I think that perhaps people need to see a case similar to their own working - then they might make the jump to that new-fangled interweb.
I agree fully with the absence of tv and radio spots. A waste of money unless there is a specific objective for simple awareness raising. A campaign that says:
Telecom use Xero, and so does Joe's Plumbers. Why aren't you?
Would be good to position the brand as a credible player - -but if you want it to get a big take-up of the product you would need to attempt to leverage people's dread of accounting - -so you would need to tailor the product a bit to be an accountancy explanation as well if a user so chose and then sell it as:
Xero. Accounting Made Easy.
Because right now, accounting is hard for everyone - -and the stay on top approach Xero allows you really does make it easier - -but with a bit of tooling around - maybe including a 'what do you want to do' type wizard or something - it could be a demystifying hand-holding helper as opposed to tool.....
a 'what do you want to do' type wizard or something
Just no talking paperclips, ok.
'Bout time someone brought out a "Practical Technology for Small Business in NZ" book. (By all means change the title). Three things I couldn't do without:
salesforce.com - despite the lame name its totally adaptable to any business and is great for tracking contacts, activities and emails from multiple home offices or on the road. Integrates with Outlook. Up to 5 users for less than $1000 a year. Can't think why anyone would build a CRM system for more than that.
ifax.co.nz - receive faxes to your email box as pdf attachments from $25 / month for up to 200 faxes. You still need to pay telecom to CustomerLink to your ifax number, if you want to keep your existing number. (Just what happened to number portability anyway...?)
servcorp - real live receptionist answers your calls in your company name, takes messages and routes calls through to your home office. Meeting rooms for hire.
Have had a look at Xero, but have invested a bit of time in customising invoices etc in Quickbooks so will stick with it for now... unless there is a converter in the pipeline soon?
Great thread, cheers.
As a small business, keeping receipts is the one thing that drives me nuts. Is there any way that an eftpos transaction could be GST enabled, so that the receipt information was recorded. I realise this would involve Banks and eftpos, but I would happily pay to not have to keep, file, enter these records when I fill the gas tank. It is such an outdated concept. Even if the GST information from the retailer could be gathered later from some kind of code in the bank statement?
oh, and in the technology i couldn't do with out, a simple and ridiculously cheap bit of software I bought online called Officetime - it records time spent with clients, links to diaries, shows time spent on projects and even generates invoices. Gotta love that.
Sorry for the delay in replying, have been at the jobs summit all day
Great idea on the EFTPOS receipts. I'll escalate that to the IRD.
Maybe small businesses can learn from charities, who need to operate under tight finances even when times are good.
I have at least 2 recommendations:
1. Hook up with Xero
2. And a billionaire currency speculator.
Rod, how did your workstream go (without breaching confidence)?
As a small business, keeping receipts is the one thing that drives me nuts. Is there any way that an eftpos transaction could be GST enabled, so that the receipt information was recorded. I realise this would involve Banks and eftpos, but I would happily pay to not have to keep, file, enter these records when I fill the gas tank. It is such an outdated concept.
For this to work, though, EFTPOS would have to transmit the line items and their dollar value as well, since you can purchase multiple products or services in one transaction. Each line item generally needs to be coded to a different account. If line items were transmitted though, it would be really cool to take the next step and allow you set up your own accounting codes for a recurring supplier and line item. This would eliminate a significant amount of accounting data entry. Also rather than EFTPOS transmitting detailed invoice information to the bank, it would make more sense to transmit invoice data to an accounting server (e.g. Xero) for storage and to allow for the coding customisation that I've just described and storage / archiving of electronic invoices. Otherwise you would be reliant on the banks to produce electronic statment files in a totally different format to what they produce currently.
The other option is IRD waives the need to keep invoices for $x or less, but there would have to be a limit to the number of invoice per month this would apply to I would have thought.
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