20VC Xero's Rod Drury on IPO on Day 1 To Hedge Fund to VC & Doing Startups Backward

Summary Notes


Host Harry Stebings interviews Rod Drury, the founder of cloud-based accounting software company Zero, on the "20 minutes vc" podcast. Rod shares his journey from his early days at Arthur Young and the pivotal role Microsoft Access played in his career, to founding Zero, which has IPO'd from day one and attracted investment from notable names like Peter Thiel and firms such as Accel Partners. He discusses Zero's unique position as a founder-led company in a competitive market, emphasizing the importance of a diverse leadership team and the company's strategy of leveraging an accountant and bookkeeper network for growth. Rod also touches on Zero's global reach, competing with giants like Intuit in the US, and the effectiveness of their sales and marketing approach. He reflects on his experience with fundraising, the value of taking breaks between ventures, and the future of Zero in empowering small businesses and tackling social issues.

Summary Notes

Introduction to Rod Drury and Zero

  • Rod Drury is the founder of Zero, a billion-dollar cloud-based accounting software company.
  • Zero had an unconventional start, going public on day one of its operation.
  • The company has received investments from renowned firms like Peter Thiel, Excel Partners, and Matrix Partners.
  • Rod Drury is a serial entrepreneur with a history of successful startups.

"I'm delighted to welcome Rod Drury, founder at zero, essentially really beautiful cloud-based accounting software."

  • This quote introduces Rod Drury and his company Zero, highlighting the appeal of the software as 'beautiful' and cloud-based.

"And they have an incredible story having IPO'd from day one and have then gone on to raise funding from some of the world's greats, including the likes of Peter Thiel, Excel Partners and Matrix Partners, just to name a few."

  • The quote emphasizes Zero's unique approach to going public and its success in attracting top-tier investors.

Rod Drury's Entrepreneurial Achievements

  • Rod Drury has received multiple accolades including New Zealand Entrepreneur of the Year and induction into the New Zealand High Tech Hall of Fame.

"Number of Entrepreneur New Zealand Entrepreneur of the Year award New Zealand High Tech hall of Fame the list goes on and on."

  • This quote lists some of the prestigious awards and recognitions Rod Drury has earned for his entrepreneurial contributions.

The Origin Story of Zero

  • Rod Drury's interest in computing began with Apple II computers during his school years.
  • His early career at Arthur Young, before it became EY, involved financial implementations and software development.
  • Drury was inspired by Silicon Valley stories and the potential of building technology that could be sold globally.
  • The "magic moment" for Zero was recognizing the opportunity to bring consumer internet innovation to small business technology.

"I guess the magic moment with Zero was realizing all of the innovation that was happening on the consumer Internet."

  • This quote captures the pivotal realization that led to the creation of Zero, where consumer internet advancements could be applied to small business technology.

Zero's IPO and Funding Strategy

  • In New Zealand, the venture capital market was not sophisticated, with the largest deals being around two to three million dollars.
  • Zero needed an initial team of about 50 staff, equating to significant monthly costs and a total funding requirement of around $15 million.
  • The team decided to go public from day one, leveraging their business reputations and the success of other companies that had floated on the stock exchange.
  • Zero raised $15 million at a $55 million valuation, and despite market fluctuations, the company's worth exceeded $2 billion.

"So we raised $15 million at a $55 million valuation, which some people thought was crazy."

  • This quote outlines the ambitious initial public offering of Zero, which was considered risky but ultimately proved successful.

The Narrative Behind Zero's Successful IPO

  • The successful IPO of Zero was largely attributed to the proven track record of the team.
  • Drury's involvement with Trade Me, New Zealand's version of eBay, and its successful sale added to the credibility of the team behind Zero.

"Well, the key thing was a track record of the team."

  • The quote highlights the importance of the team's previous successes in convincing investors to support Zero's IPO from the outset.## Market Dynamics and Opportunities in Tech

  • The tech industry has seen significant financial investments, with large sums of money flowing through it.

  • There was a noticeable hunger for tech investments during the time discussed.

  • Rod Drury had a solid business reputation and successful startup experience, providing credibility to his ventures.

  • He identified that the largest market after consumer spending is small business, which spends trillions of dollars.

  • There was a gap in the market for a cloud company focused on small businesses.

  • The concept was to centralize small business data, which has greater value when aggregated.

  • Accounting is considered a critical application for small businesses.

  • Centralizing data in the cloud can significantly improve small business productivity and operations.

"So we'd seen some really big money starting to flow through and people were starting to be hungry for tech."

This quote highlights the significant financial interest and excitement in the tech industry at the time.

"And the story was that if you look at market sizes, consumer is the biggest market. No one really likes to pay for anything. We've seen a lot of computing focus on the enterprise space, but the biggest market after consumer must be small business who spend trillions of dollars."

Rod Drury emphasizes the untapped potential in the small business market, which is substantial but less targeted than consumer or enterprise markets.

"But if you bring that into a centrally managed store, firstly, accounting is the killer app for small businesses."

He identifies accounting as a universal need for small businesses, making it an ideal entry point for centralizing their data.

Scaling a Startup

  • Zero did not experience a phase with very few employees, scaling rapidly from the start.
  • Rod Drury was involved in selling the business and story from the beginning, working with bankers and focusing on leadership.
  • A diverse leadership team with complementary skills was crucial for Zero's growth.
  • Founders are typically strong in vision but may lack operational detail, which can be compensated for by the leadership team.
  • An active people strategy and continuous talent recruitment and development are essential for a growing company.
  • Leadership must ensure alignment with the company's vision and empower great people to do great work.

"I think because we did an IPO early on, I was never working in the operating part of the business."

Rod Drury explains that his role was more strategic and outward-facing due to early public investment.

"And I think that's been the real secret of zero, is that I've always, and right from the start, have been working on the business, not so much in the business."

He credits the success of Zero to his focus on building the business and leadership team rather than getting involved in day-to-day operations.

Founder's Role and Company Lifecycle

  • There's a shortage of experienced founders, which can be mitigated by building skills through multiple ventures.
  • Founders often have to learn from several business attempts before achieving significant success.
  • Recognizing one's strengths and weaknesses is key for a founder to know when to step aside for better-suited leadership.
  • Mature founders understand their capabilities and the right time to hand over the reins for further growth.
  • Zero competes with large, non-founder-led companies, yet maintains a founder-led culture which is rare for its size and success.

"So there's a real shortage of founders with lots of experience."

Rod Drury points out the challenge of finding founders who have a breadth of experience.

"But what I know is that most people are fundamentally flawed in a few ways. So the magic is trying to get a complementary team that really works together."

He acknowledges that everyone has weaknesses and that building a strong, complementary team is crucial for success.

International Competition and Global Markets

  • Zero considers the competition to be global and operates with an international perspective.
  • All businesses are viewed as global entities in the current market.
  • The discussion did not conclude, but it was leading towards discussing the competitive landscape in the US, including competition with Intuit.

"Yeah, so we think the war is global. All businesses are global."

Rod Drury frames the business competition as a global challenge, emphasizing the need for an international strategy.## Globalization and Small Business Growth

  • Global businesses like Uber, Netflix, and WhatsApp are transforming their respective industries by operating across borders.
  • Small businesses are increasingly engaging in cross-border operations.
  • Xero has experienced significant growth by adding more small businesses globally to its brand than its competitor Intuit.
  • Intuit's traditional marketing spend of $1.2 billion, including sponsoring sports teams and events, contrasts with Xero's focus on brand authenticity.

When we started the business, it seemed kind of daunting going against these large companies. But we actually added more small business, small businesses globally to our brand than Intuit added to their brand last year.

This quote highlights the competitive landscape for small business platforms and Xero's successful expansion in comparison to traditional industry giants like Intuit.

Market Leadership and Expansion

  • Xero has captured significant market shares in New Zealand, Australia, and the UK.
  • The company has successfully transitioned to cloud-based services, overtaking Sage in the UK.
  • The US market is described as conservative, with expectations set for gradual progress.
  • Xero's customer acquisition is performing well compared to other B2B SaaS companies.

We're the leader in the UK, and we've beaten Sage to the cloud. And now it's game on inside the US.

This quote emphasizes Xero's leadership position in various markets and its strategic focus on expanding into the US market despite expected challenges.

Sales and Marketing Strategies for SaaS

  • Accounting software for small businesses is unique in having a natural channel through accountants and bookkeepers.
  • Xero leverages partnerships with accountants who each serve hundreds of customers, making customer acquisition more feasible.
  • Once connected to Xero, it's easier for businesses to adopt additional applications within the ecosystem.
  • The cost of customer acquisition can be high in large categories, making channels like accountants valuable.
  • The small business market requires a hybrid approach, combining complex business software with consumer-style sales and support.

So each accounting partner has 300 customers, so you can afford to actually go and spend time with them.

This quote reveals the strategic advantage of Xero's channel-based sales approach, utilizing the existing networks of accountants to reach small businesses efficiently.

Fundraising and Investor Relations

  • Xero's unconventional approach to funding involved an initial public offering (IPO) before engaging with hedge funds and VCs.
  • The company has attracted investments from hedge funds and VCs, including notable firms like Axel.
  • The changing landscape allows companies to scale globally from their home countries, leading to diverse financing strategies.
  • Xero's fundraising strategy reflects the George Costanza theory of management, suggesting that contrarian approaches can lead to success.

So we did everything, you know, because of the situation we described earlier, we did our IPO first, then we brought in the hedge funds... And then it's only really recently that we've actually brought proper VCs in.

This quote outlines Xero's unique funding journey, highlighting the sequence of their IPO, hedge fund investments, and subsequent VC involvement, which differs from traditional enterprise funding models.## Personal Productivity Tools

  • Rod Drury has shifted to using an iPad Pro with a keyboard, finding it a significant improvement over traditional laptops.
  • The iPad Pro has replaced his need for the MacBook twelve, which he no longer uses since acquiring the iPad Pro.

I've just moved to an iPad pro. I've got the new MacBook twelve. I got that when that came out. I haven't pulled it out of my briefcase since. I've had the iPad Pro, complete game changer, iPad Pro plus keyboard.

The quote highlights Rod Drury's transition to the iPad Pro as his primary device for work, emphasizing its effectiveness and the resulting disuse of his MacBook.

Business Philosophy and Approach

  • Rod Drury believes that taking the first step is crucial in turning ideas into reality.
  • He emphasizes the importance of action over ideas, advocating for the initiation of projects and the importance of getting deals and sales to start a business journey.

I think that a journey starts with the first step. So lots of people have ideas. You've got to make the ideas happen. Ideas are easy, they're free, they just arrive all the time. It's actually taking that step and driving it forward and making things happen.

This quote underscores the concept that the beginning of any successful venture is to take action, and that while ideas are plentiful, their execution is what truly matters.

Information Consumption and Industry Insight

  • Rod Drury uses Feedly to subscribe to various sources of information after the discontinuation of Google Reader.
  • He reads tech news regularly, particularly interested in the dynamics between Apple and Google, and uses Techmeme to stay updated on important tech stories.
  • By consuming tech news, he builds a mental model of the industry, which helps him predict market trends and the success of companies.

But the blog I like, which sort of summarizes everything, is Techmeme. I find that's the one that you go to and you'll find all of the important tech stories.

Rod Drury points out Techmeme as a valuable resource for aggregating significant tech news, which contributes to his understanding of the tech industry and aids in forming business strategies.

Reflecting on Past Business Decisions

  • Rod Drury has sold four businesses and often rushed into starting new ventures without taking a break.
  • He now believes it would have been beneficial to take a few months off between projects.
  • He advises that building experience and a network is important in one's twenties, and there is no need to rush success early in a career.

In hindsight, what I should have done was actually taken three or four months off between them.

The quote reflects Rod Drury's realization that taking breaks between business ventures can be valuable, allowing time for reflection and rest before embarking on new projects.

Future Vision for Zero and Empowering the Next Generation

  • Zero is nurturing a new generation of talent, with a focus on smart individuals in their thirties and forties, as well as very driven twenty-year-olds.
  • Rod Drury emphasizes the importance of strategy over operational work for the leadership team and encourages letting younger employees gain operational experience.
  • He is excited about Zero's potential to impact national productivity and address social issues like youth employment through its growing customer base.

So trying to have those people like I had this moment, I was at the rise conference in Hong Kong and I'm doing some business development. I'm talking to a whole bunch of people that are in their. I'm like, I see just want to go back and have a cup of tea. And yes, you need to sort of let that next generation come through and do that work.

Rod Drury expresses his intention to allow the next generation to take over operational roles, while the current leadership focuses on strategic planning, indicating a forward-thinking approach to talent management and business growth.

Sign-off and Gratitude

  • Rod Drury expresses appreciation for the support received during the podcast.
  • Harry Stebbings thanks Rod Drury for sharing his and Zero's journey and promotes following his personal updates and podcast episodes.

Brilliant. Thank you so much. Really appreciate the support.

Rod Drury concludes the interview with thanks, showing gratitude for the opportunity to share his experiences on the podcast.

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