Chris Ridd's tips for building a digital start-up in a new market

31 May 2016

Chris Ridd, NZTE Beachheads Advisor and former Managing Director at Xero, shares his experiences at Xero on how to get started in a new market, from scratch.

What are your top tips for building a digital software company from scratch in Australia / a new market? 

Make connections with informed players

If you are new to the Australian market then it pays to connect with people that can give you insights into the local market. Joining a start-up networking group or other industry association can expand your network and give you access to people that may have years of experience and importantly some valuable do's and don'ts that can help you navigate your industry.

Coming out of the big safe world of Microsoft and joining Xero was a bit of a shock for me as I had been used to resources on tap when I needed something. I found in the first year at Xero that my network of contacts was invaluable. I had established a lot of connections in the Microsoft reseller channel and was able to get great insights on everything from recruitment, legal support, commercial real estate and other practical tips about getting the business going.

I also gained great support from the Victorian State Government within their Investment and Economic Projects Division and also from the Australian Information Industry Association (AIIA) which ultimately helped in building the Xero brand.

Understand and embrace your early adopters

It was clear in the early days that we had some really passionate early adopters (in the case of Xero, bookkeepers and accountants) who were eager advocates of what we were trying to do. Spending time with them and really understanding where we needed to go with the product was critical. It allowed us to innovate in the right areas and also start to build a groundswell of support.

I noted that in the first roadshow we ran in May of 2011 we had less than 10 attendees in some locations. By the following year we were getting over 200 at most events. It didn't take long for the good word to spread and some of those early adopters really helped us build credibility and momentum.

Focus on your customer

Right from the outset, we were very focused on our customer and creating a great experience. We listened intently on what their frustrations were and we were able to see clearly how Xero and the cloud could transform accounting and the whole relationship with an advisor. It may seem an obvious thing to do, but getting into the shoes of your customer and really understanding their pain is key to success.

Study your competition daily

When I was at Microsoft we used to keep an eye on the competition and what they were up to. That's pretty standard for any company. But at Xero, we took it to a whole new level. Whilst we were always focused on innovation and changing the game, it was important to see how our competition was or was not responding.

In the early days this was a great source of confidence in what we were doing because our partners were enthusiastic about the change we were bringing to the market, yet our competition seemed almost in denial about how cloud was taking off. That made us really excited about the opportunity to take substantial market share.

Externally we never even mentioned the competition at events and many people commented on how Xero always focused on our game plan and what we were doing, rather than sledging the competition, which is exactly what our competitors would do with us. But, behind closed doors we kept a very close eye on what competitors were doing and we would respond. 

Speak the language of your customer / industry

We created a standard spiel about what Xero meant to an accountant. We got this down to four words ... visibility, collaboration, control and efficiency.

It is important that any solution you bring to market addresses specific industry needs. Be really clear and concise about how it solves real problems. In the case of Xero with accountants, we created a standard spiel about what Xero meant to an accountant, as an example. We got this down to four words and I can still here Wayne Schmidt's pitch in my head as I recount those early days: visibility, collaboration, control and efficiency.

Being in the cloud with Xero gives you have full visibility of your clients’ accounts, allowing you to collaborate anywhere and anytime. It puts you in control of the process and ultimately gives you greater efficiencies in running your practice. Really simple and really powerful. 

Don't get distracted

I see a lot of start-ups go down rat holes in search of the silver bullet partnership or deal that is going to propel them into incredible scale and hyper growth. Rarely is there a silver bullet, but there are certainly plenty of rat holes.

Many times I was confronted with opportunities to pursue that meant spreading already thin resources even thinner. You need to be pretty ruthless in where you spend your time. You need to qualify really hard.

It's a hard one because you want to be nimble and jump on new opportunities, but you have to be picky, so the art is being able to identify a good opportunity and to steer clear of rat holes that will soak up your valuable time and lead to very little return.

Lots of money helps, but use it wisely

I've seen plenty of compelling boot-strapped start-ups do really well and grow a profitable business. I've also seen situations where well-funded companies will cut corners or make lazy decisions because they have plenty of cash.

This is a bit of a luxury but clearly having lots of capital can really help. In the early days at Xero, I would catch up with peers over a beer and discuss business progress and challenges and they'd always be so envious of the money I had at my disposal to grow the business.

Being able to invest in new opportunities and grow quickly can be a real advantage, but it is not a guarantee of success.

"I've seen plenty of compelling boot-strapped start-ups do really well and grow a profitable business. I've also seen situations where well-funded companies will cut corners or make lazy decisions because they have plenty of cash."

It comes down to having the right disciplines from day one and making sure you are running the business as if it was your own money, but certainly having money and enough of it is a big advantage. 

Were there any difficulties you wished you knew about when launching and building Xero in Australia?

The power of a platform. Not so much a difficulty, but perhaps underestimating the importance of the ecosystem in the early days was an area that I had overlooked. I probably didn't appreciate how important the add-ons ecosystem was going to be to Xero's success in the longer term as I was way more focused on the accounting function in small business.


When I started at Xero, we had only 25 add-ons and the concept of open APIs and how it would help bring a complete marketplace of solutions to the Xero value proposition was still quite new. As this took off it became clear that the main prize for Xero was way more than just providing cloud-based accounting software. We were clearly a viable platform for small business and that has been proven today, with over 450 add-on solutions available to small businesses and their advisors
 

Better understanding and representing the industry

When I started at Xero, I didn't know a great deal about accounting. Sure, I had studied accounting in the early days at Uni and was even a part-time bookkeeper for a real estate agent during my time at Uni, but I didn't really have a background in accounting practices, or even small business for that matter.

Getting up to speed on the pain points for our accounting and bookkeeping partners wasn't so much difficult, but it took time. My first 3 months was spent visiting as many accountants and bookkeepers as I could fit in. Six months in, I also started hiring practitioners (accountants and bookkeepers) into sales and consulting roles.

I had met quite a number of long-term accounting software sales people across the competition and it's fair to say that I didn't meet many impressive ones and I didn't want to build Xero that way. I felt Xero's proposition was so unique and so authentic that it made sense to hire practitioners who had been there and done that and could impart their story and experiences with Xero and cloud software to other accountants and bookkeepers.

As Xero grew, our impact became way more than just building market share. We were changing an industry and the expectation on our role and ensuring we were investing in the industry became really important. So by late 2013 we decided it was time to reach out to the industry and hire on contract two industry managers to represent the needs of accountants (James Solomons) and Bookkeepers (Mel Power) and ensure we were listening, responding and guiding the industry on moving to the cloud.

We had to educate our partners on how to be successful in this new era of digital disruption which was hitting the accounting industry hard. We also had to make sure that we had an additional channel for feedback coming into our product teams to ensure we were aware of some of the challenges that the industry was facing and that we could translate that into better products. 

Be thorough when hiring at all levels

I know it's a cliché, but getting the right people on board was paramount. In the early days I made one or two poor hires and it really came back to bite me. Paying attention to the culture of your company, no matter how small your business is, is something that requires attention and time.

Finally, I know it's a cliché, but getting the right people on board was paramount. In the early days I made one or two poor hires and it really came back to bite me. Paying attention to the culture of your company, no matter how small your business is, is something that requires attention and time.

After misfiring on one or two hires in those early days I decided that I'd get involved in every hire when I could spare the time. With over 200 staff at Xero there are probably only a handful that I was not at least on the phone to or connecting with over a coffee as part of that last stage of the hiring process.

I rarely said no as I trusted my team and we invested in interview training to make sure that we were sharp in recruiting talent, but there were certainly occasions where my gut feel took over and I vetoed a number of hires. It just meant that hiring became really critical and often a focus of discussion and debate as we sought to get the best possible talent and cultural fit through our doors.

I was proud in 2014 when Xero was ranked by BRW as #16 best place to work in Australia for companies with over 100 staff. A lot of that success I attribute to the focus and time that I, the leadership team, and in fact all hiring managers put into the hiring process.  

What are the main things you’d do differently if you were to build another business in Australia?

Capital raising

It's hard to know because I think much would depend on the style of business. I think Xero was quite unique and a lot changed in those early years. Initially we were focused on breakeven at the end of 2011 and we didn't have the sort of capital that we needed to go really hard after the global opportunity.

That all changed in June of 2011 and after a series of quite substantial capital raises with high profile investors from the US, Xero's trajectory and growth prospects grew substantially. So the outcome we were seeking in my first year changed dramatically and we suddenly had a big shift in gears to go for hyper growth.

Hiring quickly

Perhaps one of the things I'd do differently is that I would have perhaps hired some of the key supporting roles that we tended to put off as we focused on market growth. For example, getting a lawyer, HR director and some key operations staff took longer than probably I should have let it go. Not that we had major issues in these area but I’ll admit that by the time we got our HR Manager (Chris Regan) on board, we had a number of basic HR challenges around remuneration and benefits that needed attention. 

How has being a New Zealand company affected (or not) your place and success in the Australian market?

"We quickly associated Xero with starting in "this part of the world" and talked about being a New Zealand based company. That allowed us to associate our brand with other successful companies that were going global from Australia such as Atlassian, Campaign Monitor and Big Commerce."

Very little. Initially, there was some resistance to the fact that we were out of New Zealand. It wasn't so much an Australian versus New Zealand thing, but it was more to do with the fact that we were new, young and small and many accountants and bookkeepers (whilst they loved our product) wanted assurances that we were going to stay around.

They wanted to know that we had the money to survive because it was a big deal for them to start putting their clients finances online and in the cloud with this little known startup out of New Zealand. So it was important to build an Australia brand and presence and demonstrate our long term viability and commitment to the Australian marketplace. 

As things took on a global perspective you'll note that the language about being New Zealand based changed. In fact, after I'd do a Sky Business interview and I'd mention the fact that we started in New Zealand, Rod would immediately call me and tell me to stop doing that. We quickly associated Xero with starting in "this part of the world" and talked about being a New Zealand based company. That allowed us to associate our brand with other successful companies that were going global from Australia such as Atlassian, Campaign Monitor and Big Commerce. 

If you look at how we transitioned that message in the media, it was very deliberate. Everyone at Xero is certainly proud of our New Zealand heritage but we were always about becoming a global player and we very much talk about being a global company now rather than focusing on our New Zealand beginnings.

A short version of this article was orginally published on Stuff.co.nz in April 2016.