Research Team, 5 December 2018

In this video, we talk with Steve Vamos, CEO of Xero. We find out his most important investing lesson, along with details on Xero’s latest result and what’s in the pipeline for the year ahead. Questions covered include:

  1. How are you attracting new subscribers to your platform?
  2. What were the key drivers of your 37% revenue growth for 1H19?
  3. What attracted you to your recent acquisition of Hubdoc?
  4. How are you looking to grow the Xero eco-system?
  5. How does Xero manage the complexities of entering new markets?
  6. When it comes to investing, what’s the most important lesson you’ve learnt?



Craigs: Your subscriber numbers are growing rapidly – now at 1.6 million. How will you maintain this growth?

Steve: The penetration of cloud accounting around the world is still very low. Less than 20% in most markets. So that presents us with phenomenal growth opportunity. To go after that, we have to continue to do the things we’ve been doing. Which is, deliver great product through a really strong partnership with accounts and bookkeepers. Making sure we connect with the banks so that we get the bank feeds happening in Xero, which is very compelling. And then also make sure we have the local adaptations around tax and compliance that really make our product complete in each of those markets.

Craigs: Revenue was up 37% in your latest result and underlying operating earnings more than doubled. What were the key drivers?

Steve: We’ve had a real focus on top line revenue growth and operational discipline for some time now, and we’ll continue to have that focus. And what that means is that we really make sure that our investment in our business is efficient. We’re driving improvements in cogs, so that our gross margins have increased in recent times – they’re now at 83%. And we also are very, very careful to make sure that, as we’re investing in markets we’re seeing that over time, the word of mouth effect and the key drivers of our business growth are really working well for us.

Craigs: What was the strategy behind acquiring Hubdoc in the US?

Steve: Hubdoc is a really good example of the kind of acquisitions we’ll be looking for. Hub doc enhances our core cloud accounting offering and makes cloud accounting more code free by virtue of bringing data more efficiently in to the whole accounting process. It also enhances Xero as a small business platform because of the connections that are facilitated through Hubdoc with bank data and information. But also information from suppliers to small business. And finally, Hubdoc really provided us with an access to talent in a very attractive market, being Canada. And also in a city – Toronto – where you can really get access to good technology talent as well.

Craigs: How are looking to grow the Xero ecosystem?

Steve: We’re very fortunate to have 700 organisations building applications that leverage the Xero APIs. They have in turn 50,000 developers doing the same, which is terrific. We see significant opportunity to work more closely with our app partners and we’re exploring many of those opportunities. For example, focusing on solutions for specific industry verticals and going to market that way. And we also see that as we grow in to more markets and more small business customers, our app ecosystem will continue to grow as well.

Craigs: How does Xero deal with languages, laws and tax regimes when entering new markets?

Steve: Our focus at this point in time has been very much on English language and we see enormous opportunity in markets that are focused on English. In terms of other compliance and local needs, we are very conscious of that. And that’s why, when we enter markets we do spend significant investment in making sure we have local tax and other compliance elements of our application suite right for that market.

Craigs: When it comes to investing, what’s the most important lesson you’ve learnt?

Steve: The biggest lesson I’ve learnt about investing is if you don’t have the time to focus on it, make sure you have someone who does, doing it for you.