Last week Xero announced that they now have 500,000 clients. This news was congratulated by many, but in numerous ways this milestone is a result of Xero's achievements rather than being an achievement in itself. If we look back, we can see that Xero has changed the world of small business accounting.
Between 2005 & 2010 (when the opportunity became apparent) almost 100 software companies around the world set out to build online accounting solutions. Today very few exist as significant businesses; even fewer can claim to have changed small business accounting.
All of the cloud solutions offered three important advantages over desktop accounting: an easy user interface (UI), easy access and built-in invoicing:
1: Easy UI
It is now easy to forget that accounting packages used to be intimidating. They required training and practice and they remained inaccessible to those who weren't familiar with accounting jargon. The first big benefit that the cloud accounting solutions provided was an easy-to-use and easy-to-understand interface.
2: Easy Access
The next big benefit that cloud accounting brought was easy (and shared) access for the bookkeeper, the accountant and the client. No more local files, no more restricted access. This has been a huge advance for small business accounting that has made the books relevant as a management tool.
3: Built-in Invoicing
When the accounting file was restricted to a specific PC in the office it was normal for the invoicing to be done in a totally different system (often Word or Excel!). Bringing the invoicing into the accounting system is one of those huge time-savers that makes what went before instantly look old fashioned.
The Xero Difference
Whilst the majority of the cloud vendors could offer these three benefits, Xero is significant because it went further. Rather than migrate desktop accounting packages to the cloud, it sought to take advantage of the cloud to change the definition of accounting software. The Xero innovations include: bank feeds, an open API and partnership with the industry:
4: Bank Feeds
Bank feeds is the feature of cloud accounting that grabs the attention of small businesses. They offer a clear and significant productivity benefit over desktop software. Today Xero is not the only vendor to offer bank feeds; indeed it has become a standard feature expected by all. Xero was, however the innovator who made bank feeds an expected part of cloud accounting.
5: An Open API
Many of the cloud vendors have an application program interface (API). An API is the feature that allows your point-of-sale system to talk to your accounting system, or that enables Receipt Bank to send data and images to Xero. Not all APIs are created equal. Xero was different because it sought to have an API that was free to use and equal to its UI - meaning that the API was as powerful as the UI. This signalled to thousands of developers around the world that accounting would be part of the data revolution. Less than half of small businesses take advantage of this fact today so it is still a benefit that isn’t yet apparent to all, but the significance and importance of Xero’s pioneering stance on this will become increasingly clear.
6: Partnership With The Bookkeeping & Accounting Industry
Many of the cloud accounting vendors started off their journey believing that their software would replace the bookkeeper, the accountant or both! Xero was a rarity in embracing the industry and working with it. This meant that the adoption of cloud accounting (and its benefits) has been much quicker than it would have been otherwise. If Xero had not made the industry central to cloud accounting then we may be looking at a more backward industry today with far fewer businesses enjoying the benefits of the cloud.
Today And The Future
So today Xero is reaping the rewards of its early pioneering and it deserves huge congratulations. Building a business that has 500,000 clients and an annual recurring revenue of US$150+ million* is an incredible achievement. Well done Rod and the team!
But 500,000 really is just a stepping stone. I have the advantage of seeing Xero working around the world and I believe that Xero will be a business that measures their client numbers in the millions, not in the hundreds of thousands.
What does this mean for small businesses and their advisors? Clearly Xero is not the only vendor but their achievements have improved the products of MYOB, Intuit, Sage and others who have now made the cloud central to their offerings. All businesses using cloud accounting are benefitting from Xero’s vision.
Next, we will see Governments adopting the cloud (this has already been announced in the UK), banks embracing the cloud and a raft of further innovations from software vendors. Xero has played its part in bringing the cloud to accounting but we are a long way from seeing all that Xero, or the cloud, has to offer to small business accounting.
* Xero Announces Fiscal 2015 Results https://www.xero.com/media/6426660/xero_announces_fiscal_2015_results.pdf