Gary Turner is UK co-founder and managing director of Xero, the revolutionary accounting software taking the world by storm. He has shown that what may have been perceived to be a crazy idea by leaving a software giant like Microsoft to work for a relatively unknown New Zealand founded company has turned out to be possibly the best vocational decision of his life.
But how and why did he do it? What motivates him and what are his passions in life? KWIB magazine Editor-in-Chief Susannah Schofield OBE recently met up with Gary to get those all-important answers.
Susannah Thank you for taking the time to speak to us! First off, what’s next for Xero?
Gary We often describe where we are by saying we’re at the end of the beginning. We’ve spent the last few years just introducing people to the idea of thinking about accounting and managing their business differently. People are now running their businesses on their smartphone or iPad every day, pulling in their accountant when they need them, rather than this kind of periodic method that a lot of small businesses use to use. When you’re running a business, you’re really busy, and things like accounting, bookkeeping and finances can end up taking a back-seat. Usually, it’s when there’s a deadline coming – a VAT return, tax return deadline, or just the end of the month when a business owner sits down on a Sunday afternoon at the dining room table and does this kind of binge bookkeeping thing.
Susannah You’ve got a camera in my office, haven’t you?
Gary It’s the old way of working, it’s the way that many businesses have operated because there just wasn’t the technology available to help them do it any differently. We’ve spent the last few years just introducing this idea that it doesn’t have to be like that. There are easier, smarter ways of running a business that don’t take a long time or take any focus away.
We’re fast approaching a couple of hundred thousand businesses on Xero in the UK all embracing this new way of working. But there are 5.5 million small businesses in the UK. And so, the next challenge is how do we go from a couple of hundred thousand customers to 20 percent of that pool? And how do we find another 800,000 customers to come with that platform in the next five or seven years?
What makes it really interesting is that it could be any kind of software. And there’s lots of different categories of software for a small business owner to choose from but what’s interesting about our focus is that it’s on small businesses, and small businesses have generally had a pretty rough deal in the past when it comes to technology. They don’t have a lot of money to spend on IT. They don’t have lots of employees or the resources to implement the solid technology infrastructure. In today’s world, you don’t need to have lots of cash to buy great technology, and it is much easier to use and more accessible. Small businesses also make a huge contribution to the overall economy, contributing something like half of our country’s GDP, and two out of every three new jobs. What this demonstrates is that small businesses are generally under-served by technology, however, they make a huge contribution to the overall economy. If we can affect even a 5 percent improvement in the productivity of the typical small business, then not only will we succeed in building a great business for ourselves, but we’ll hopefully have had a positive impact on the world because small businesses play such an instrumental role in the UK economy.
It is so hard to run a small business and I’m personally really passionate about how we can help solve this problem. We could be in any category of software, but helping small businesses overcome these big life or death challenges is just hugely motivational for us, and drives a lot of our thinking in terms of where we invest and build Xero and the kind of support that we provide our customers. And not only are they happy to pay us, but it feels like good work and like we’re really making a difference. But genuinely, small businesses are the unsung heroes of the economy and nobody really cares about them enough.
Susannah I actually think there’s a level of integrity coming back into business. The cut throat dog-eat-dog world where you have to be ruthless has gone. I think now everyone thinks that ‘what if we all work together and pull together?’. It’s a much more collaborative feeling.
Gary If you think about the traditional support networks available to small businesses and the Federation of Small Businesses, banks haven’t really done it for them. Government support for small businesses has generally been around start-ups and getting businesses up and running, but banks historically have found it very hard to support small businesses. It’s easy to characterise banks as the baddies because not everyone likes them but actually, if we all decided today to form a bank that lends money to small businesses, we probably wouldn’t give money to the first 10 that came through the door.
Susannah The trouble with all of those in my mind is that they all take so much paperwork to get. Like you say, the government start up fund is great but actually you’ve got to do almost a month’s worth of paperwork to prove it and then that month
could be about keeping your small business alive. Any plug-in that actually gives you that information quicker, smarter, faster has got to be a better investment.
Gary It’s what we do! A small business owner can circumvent all of those bits of friction and the “life’s too short I’m not going to bother with that” mentality by beginning to use invoicing apps on their smartphone, which is just a tiny little change.
And so, the feedback we get all the time is brilliant. I was at an event yesterday and there’s a couple of people on the panel and they said “I can’t believe we ever did it differently!”. We wear Xero t-shirts occasionally and might be checking into a hotel and people walk by and say “oh, are you the accounting software guys?”. And I say yes, we’re Xero and they say “I love using that product!”. It’s really humbling and flattering when that happens. It’s a great thrill because it really motivates us. But that never happened when I had a Microsoft t-shirt.
Susannah It feels very approachable as a brand. I think Microsoft always feels a little bit elite, unapproachable because it’s so big whereas Xero, I think, was very cleverly marketed and I mean that as a compliment you know. It feels approachable…
Gary You know, we don’t buy software anymore. As consumers, we are buying actual experiences because we now are quite sophisticated when we’re evaluating things. And there’s no point buying this great widget or a tool or service if everything around it doesn’t align with the promise. We can have a beautiful, amazingly well-designed accounting package. But then if it broke quite a lot and you had to spend 45 minutes on the telephone listening to music, that doesn’t align with a great modern experience. When you engage with Xero and that experience isn’t amazing then something is not right. I guess previously as a business we could just do one thing really well and everything else was secondary. But now I think, as consumers, everything has to be amazing. When you first go to Xero.com it kind of sets out the expectation from the source where you can make a brand feel really friendly.
Susannah Gary, how did you find yourself at Xero? What was your journey that got you here?
Gary I’ve been in this category of small business accounting software for a very long time. I started when I was 20 and I spent the first five years of my career in an IT services business. Advising, consulting and helping SMB’s (Small, medium business) with technology, albeit older generation stuff that was pre-internet, was a great education for me. One can have a vivid picture of what it means to be an SMB and all the challenges because I spent the first half of my career in SMB’s. So, I have an idea of all the problems SMB’s face.
I then joined an accounting software brand company called Pegasus in 1995 and I managed the reseller network, speaking at events etc. I left Pegasus ten years ago so I was there for 12 years. I joined in a regional role but I ended up in my last four years as the MD so I learned all about what it means to run a software business. I had a great time there. But I recognised that Pegasus was an old platform and I knew the Cloud was coming. You could see the Cloud and see the Internet developing 10 to 15 years ago. I think I’d taken Pegasus as far as it could go so I then went to Microsoft because they were doing some really cool stuff around building up the .NET and their cloud strategy.
I was busily plugging away at Microsoft, helping them introduce cloud concepts to businesses when I heard of Xero. They were starting in New Zealand but didn’t really anticipate that they would ever come to the UK because software didn’t travel that far in the old world.
I thought it would be interesting to see where they go. And I think I’d probably had a play with the software thinking it was a great product. Then eight years ago I received a message from one of the founders in New Zealand saying “we want to get going in the UK”. “We think it’s a huge market opportunity in the UK because of the cloud because there are so many SMB’s. We’re looking for somebody to come and help us build a business in the UK and get us going”. I didn’t need to listen to the rest of the conversation, I was in.
I quit my job at Microsoft to join Xero 8 years ago. Microsoft thought it was completely insane because I’d never worked in a start up before. Xero revenues in 2009 were £50,000 as a business. Just a few hundred customers but a fantastic opportunity. It was so obvious to me that I quit my job at Microsoft.
Susannah So how did you build it? How many staff were there at that point.
Gary There was somebody doing support, somebody doing sales and a consultant. Including me there were four of us. No office, we all worked from home. And it was a real clear sense of what it would take to succeed.
We recognised early on that accountants and bookkeepers were critical stakeholders in the small business community and we just set about systematically, brick by brick building those relationships. We had 10 accounting firms in the UK then but now, eight years later we have six thousand.
Susannah And how long did it take to get from that real infancy to actually realise that you can do it?
Gary We always knew we could do it. I wouldn’t have quit my job at Microsoft had I not believed it would happen. Even when we had nothing we knew this would work. This is a great product, a huge opportunity in an under-served market. There’s nobody really doing anything in this space. Everything is moving to the Cloud. We have a great kind of value proposition, it’s just a case of cranking the handle.
Susannah Can you pinpoint that moment when you suddenly thought “this is it!” How many years in?
Gary When I quit my job at Microsoft. Seriously, 100 percent!
Susannah Was there a moment when you actually signed one deal and you can remember thinking “Oh, ok now the pressure from the investors”?
Gary That’s a really good question because you think if you’re working hard, one day it will just take off. It actually doesn’t work like that – I actually wish that it did! It’s always hard. And rather than one big noticeable uptake you have lots of tiny ones. It’s when you see your daily sales going from five-a-day to seven-a-day, almost imperceptible. It hasn’t gone from five to 50-a-day. It’s all tiny little steps.
Susannah And would you encourage incremental growth? Is it much better for business to grow with the price rather than have one massive contract? Does going slow and steady enable you to research your clients well?
Gary You have to do it brick by brick because you’re building that resilience and integrity into the business; particularly in a subscription-based business like Xero. Many people in our space go for the quick and big early money deals, which actually take their focus away and they get swamped just servicing those big deals; forgetting that actually, you build a skyscraper brick by brick.
And then, of course, you build your business around needing to get quick wins. And the problem with that is there aren’t many to go around! Don’t lose focus. There isn’t a get rich quick scheme – sadly. It is just relentless, really hard work day- by-day. You just show up, add another brick, add another brick and eventually, you’ve actually got something! It’s high integrity. As your customer base gets larger, if you lose 10 percent of your customers you’re losing a smaller and smaller slice.
I used to think it would be amazing to be in a business that’s growing at 50-60 percent year on year because it kind of implies that it’s just doing it on its own. And you just happen to be in the right place at the right time and just have to make sure it stays on track with the exception of a few freaks like Facebook.
But for us normal unlucky people it’s just tenacity. It’s almost like a reverse attrition. You just have to keep grinding and eventually, you have something and then you have a platform where it then begins to get a little bit easier. I think the big proof points were when we got to a thousand accounting practices and when we struck our strategic partnership with KPMG two or three years ago; both felt like the validation of Xero. We have our annual conference coming up in October this year and we have 1400 people coming along. The first one was 200 people, you just see those proof points.
But it’s the bit in between those milestones which is the really boring execution part. It’s just day after day and then you’ll speak to somebody you meet that is using Xero. And then all of a sudden everybody is talking about your brand. The analogy I use to describe it is that we’re in an eight-year overnight success. It’s like building a skyscraper in downtown Manhattan, right. How many floors do you have to build before anybody notices you’re building a skyscraper? Nobody notices the first 50 floors. Nobody notices the first 60 floors but the minute you build floor sixty-one and you pop above the skyline everybody suddenly goes
“oh, where did that come from?” To them it’s like the skyscraper just appeared yesterday!
But the fact you’ve been building it for a year wasn’t visible to everybody else. So, all of a sudden everybody’s talking about Xero because we’ve just built enough scale to pop up through the skyline. But in fact, it’s taken eight years to build.
Susannah Brilliant analogy! Finally, you work ridiculous hours I’m sure, but is there something you do in downtime?
Gary I like going for long walks. I love podcasts. I listen to podcasts every day. I have about five or six that are just my media diet digest now. I watch a bit of TV, listen to the radio now and then but if there’s any media that I just completely consume relentlessly it’s podcasts and in particular those discussing technology.
Susannah And where do you think the next big thing is coming from?
Gary There’s a list of things right now; AI, self-driving cars, virtual reality, machine learning – obvious candidates – and they’re all kind of interesting.
The way I see it, when I started my career, it was about helping. Giving you technology like a word processor made you as an individual more productive because a word processor was better than a typewriter or a pad and pen. We influenced the productivity of a person. The next phase was actually connecting people in an office to a network so they could start sharing files, share printer resources and email each other. The second phase was impacting the productivity of teams. Then it became about the whole company so the guys out there that are also in the business – we connect them. And the last one is an exciting one.
So, we’ve seen Uber and Netflix kind of upturning the business models of entire industries and the next logical phase is society. We’re now entering a societal aspect of that change because I remember when it was just people and I’ve seen the trends.
That’s social, that’s the implications of artificial intelligence for society for jobs. What is the future of work in a world of increased automation? If everything’s being automated what are we all going to do? Are we going to be redundant in 20 years? Because what happens when we don’t need accountants or taxi drivers anymore? So, I’m kind of interested in not so much what a discrete widget or idea or gadget or software product is, but the implications of technology and how it influences what it means to run a business?
I’m reading a book at the moment called ‘The Inevitable’ because technological change is inevitable on a long enough timeline. It’s going to happen. It might take 10 years it may take 100 years. It’s going to happen.
I love technology but I’m actually now thinking a lot more about societal changes like moving to a three-day working week. Maybe we do have to move to a universal basic income where we’re all kind of effectively claiming what we call today unemployment benefit. Because the benefit of productivity improvement across all industries means there’s way more money to go around and therefore we don’t have to work anymore. What is that? What if we don’t have to work? What is our purpose? If everybody earned this kind of basic level of income that would be great. Discussion the other way is that we’d have no more starving artists, and would live in a world with more creativity in it.
Susannah Yes, but this is where I struggle with this a little bit because from a personal viewpoint, I think it would be great. But then you take away drive, determination and would people push themselves to excel if they could have a three-day week? Communism looks amazing on paper you know but when you add human greed it doesn’t work.
Gary I think we’ll all end up level and our jobs will be less tedious perhaps in some respects but then somebody will have to identify opportunities that arbitrage the gap between basic existence and the world’s most stratified. We as a society are amazingly ingenious and will come up with new ways, the new world of work.
We’re right to be apprehensive of change but I also think it’s the human condition. Look at the turn of the 20th century and the first automobiles and there was the hypothesis that if you travel anything close to a hundred miles an hour you will probably die. I just think that we’re in the ‘flat earth’ phase where the concept is completely incomprehensible and we don’t have the relevant faculties to map all of that work.
It’s the wonder of it all. Yes, we have to be responsible with that and worry about work and what the kids are going to do when they grow up but it is also inevitable. We’re just going to have to grab it and make the most of it.
Susannah That’s brilliant. One last thing. What’s one piece of advice that you could give a small business setting up?
Gary Move fast. It’s the fast that eat the slow not the big that eat the small. So, if you’re small you can move much faster than the big guys. And that’s a huge competitive advantage that most small businesses don’t realise they have.
Susannah Good advice. Thank you so much Gary. This been really brilliant.