From the long white cloud to the virtual cloud

We always assume that major, mature markets aren’t ideal for new entrants, as the incumbents they are up against are huge and invulnerable.

It was fascinating, then, to see a start-up from New Zealand, with its most enthusiastic markets in countries like South Africa, appoint a CEO based in Silicon Valley. Sukhinder Singh Cassidy, a Tanzania-born veteran of companies such as Amazon and Google, took the reins of cloud accounting firm Xero just over a year ago, with her office in Palo Alto, California.

Xero was ranked the fastest-growing fintech start-up in the late 2010s, as it expanded from New Zealand and Australia to headquarters in the UK. It launched in numerous small markets, taking South Africa by storm and picking up more than 20,000 customers in its first few years in the country.

The appointment of a CEO based in Silicon Valley was symbolic of the company becoming truly global — and also of the innovative ways in which new business models can be brought to sophisticated markets. Cassidy told Business Times the biggest challenge of addressing the US market was not the country as such, but how large Xero’s portfolio was.

“If you look at the number of geographies, channels, customer segments, and products we offer ... [t]he challenge is just deciding where to allocate our resources and global portfolio.”

Even the target market is not as simple as aiming at all small businesses.

“We have a business that is loved by accountants and bookkeepers in small businesses, it does essential work to help them understand their finances, and that’s a great place to be,” she said.

“But, like many tech companies, we were previously focused only on top-line growth. One of the things we announced at our results in May was turning our attention to a dual focus of high growth and profitability. We have to focus on where to allocate resources more dynamically and how to build new skills and bring new capabilities and new leverage for growth.”

At the time she was appointed, Cassidy said her focus would be on the opportunity of a vast total addressable market (TAM), which suggested expansion across the US. The strategy turns out to be far more nuanced, though.

“Australia for us is actually quite a large market, and we still believe we have an opportunity to bring customers into the cloud. In the UK, only something like 30% of small and medium businesses (SMBs) are on cloud accounting. So I think the TAM in the UK is actually quite large for us as well.

“The US has enormous TAM but it’s a bit of a misnomer. There are 34-million SMBs in the US. The US is such a large market that you need to segment it if you want to compete effectively.

“We’re trying to go after two specific segments. One we call the more complex SMBs. By complex, we don’t mean hundreds of employees, but a complex business span across invoicing needs and payroll. So we call those ‘businesses with multiple jobs to be done’, Cassidy said.

“And then we talk about accountants and bookkeepers, particularly in Canada, and those who are moving up into advisory services. In the US, our TAM in segments we’ve identified is still millions of customers. Even those two segments by themselves are probably approaching the size of SMB markets of entire nations.”

We have to focus on where to allocate resources more dynamically