Xero engine pulling New Zealand tech train

Last month Economic Development Minister Steven Joyce issued a report on the state of New Zealand’s technology sector. It says the sector is “strong” and “fast growing”.

In other words, the NZ tech express is leaving the station.

What the report didn’t say is that the engine pulling that train is a single company: Xero.

Xero on track

Yesterday Xero announced it now has 500,000 customers. At the last count the company had about a quarter of a billion in the bank.

These two numbers tell us New Zealand could soon be home to a global technology giant on the scale of Apple, Google or Microsoft.

Xero’s brand is already well-known around the world. Forbes magazine ranks Xero top of the World’s 100 Most Innovative Growth Companies.

New Zealand wins

That success is good for New Zealand. We’ve long had a reputation for developing quality software.

Thanks to Xero, we now have a reputation for developing and selling world-class technology.

We’re on the map as a nation of innovators. The world is taking notice.

Ticket to ride

If we’re smart, we can all hitch a ride on Xero’s success. The company’s emergence on the world stage gives us a once-in-a-lifetime opportunity to transform and diversify our economy. This is our chance to position New Zealand for the 21st century.

Technology engines like Xero don’t pass by often.

Growing the NZ tech sector

While there’s no room for complacency, we’re doing well. Overall New Zealand’s IT service exports grew 14 percent year-on-year in the six years ended 2014.

MBIE reports total IT exports are now $930 million. Software exports increased from $166 million in 2012 to $300 million in 2014.

Research and development spending grew at an annual rate 14 percent during the last decade. Technology related employment was up 6.5 percent.

Companies listing

New Zealand now has more than ten listed technology companies. Those tech companies now make up 10 percent of the NZX by market cap. They all export.

It’s a success story by any standard, yet New Zealand’s outstanding technology performance has a narrow base.

Xero accounts for about half of the New Zealand tech sector by market capitalisation. Last year it was behind one-quarter of the sector’s export earnings. It makes up 20 percent of the research and development spending and created one in ten of new tech sector jobs.

The fresh capital raised by Xero in 2014 was five times the total amount raised by all young NZ technology companies in 2013.

Leadership

Beyond raw numbers, Xero is showing younger New Zealand tech start-ups how to tackle problems such rapid international growth from a relatively remote base. Xero has put New Zealand on the map for international technology investors.

Savvy investors come to town to see Xero, that gives the next generation of entrepreneurs an opportunity to showcase their ideas to the people with money. It’s an opportunity that didn’t exist five years ago.

Xero CEO Rod Drury at the Auckland AWS Summit.

Xero marketplace

A sub-set of smaller start-ups is directly dependent on Xero. They are part of a vibrant marketplace that has grown up to develop products and services around the company’s accounting software-as-a-service business.

There are some 400 app partners trailing in Xero’s wake. Many are New Zealand-based.

By building tools that work with Xero, they get immediate access to ready-made customer list. That’s half-a-million potential customers from day one.

Inspiration

There’s another effect. Xero acts as a training ground for the next generation of software entrepreneurs and as inspiration for future generations.

High school students and university undergraduates can see for themselves that building a world-class technology business in New Zealand is not unrealistic. Our young entrepreneurs now know they don’t need to fly to Silicon Valley.

That will please Mum and Dad. It will please Mum and Dad investors who’ll have access to growth stocks to help fund their retirement.

If we act sensibly now, Xero’s surge today could have an effect for years to come.

It could reboot the entire economy. That’s vital. The recent fall in the dairy price underlines how important it is to move away from depending on commodities.

Beyond tech

Xero’s pay off goes well beyond the technology sector. More than one-in-five small businesses in our nation of small businesses use Xero’s software. That already makes us one of the most advanced business cultures anywhere in the world.

Thanks to Xero our panelbeaters and plumbers are online and in the cloud. They will be reaping huge efficiency gains from this long before their counterparts overseas.

Xero spin-off benefits will accelerate. Having a large slice of the nation’s companies online and in the cloud means government can move fast to modernise its business interactions. We’ll be among the first wave of countries integrating our tax system with cloud accounting. We could even be first.

We’ll have experts here who can teach the world how to become more effective business owners and managers.

Leverage

Likewise New Zealand’s large business-to-business suppliers are finding ways to leverage Xero. Among others, Warehouse Stationery links direct to Xero making things easier for customers.

Paymark is working with Xero to end paper receipts. These are great for productivity. Finally we are in sight of the promised ‘frictionless commerce’.

Xero has already changed New Zealand. It galvanised our technology sector, inspired a generation of entrepreneurs and eased the load on small business.

There could be more. More Xeros or Xero-like companies would mean more export earnings, more high quality investment and more great, well-paid jobs. It would mean we would keep our brightest talent and attract the best brains from around the world.