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Hosted Xero accounting system opens for business in UK

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5th Mar 2008
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It's another week, and another web hosted accounting software system has hit the UK, this time from New Zealand-listed start-up Xero, which is promising to unleash a life-changing "purple cow" that will introduce small businesses to technology's next evolutionary phase.

The £29 a month Xero system is the brainchild of technology entrepreneur Rod Drury, who worked with Wellington-based accountancy firm Openside to create a "disruptive" Web-powered accounting system.

Drury asked Openside partner Hamish Edwards to act as his firm's virtual finance director, but the PC-based MYOB accounts system they installed could not cater for the remote access Drury demanded. "We decided that system was broken because we couldn't access it on the Web," Edwards said.

While the system was still in its initial testing phase, the newly named Xero raised NZ$15m on the New Zealand stock exchange in June 2007 with a listing that valued the company at NZ$55m. Drury and Edwards saw the potential for a long-term, public company and justified their strategy by claiming that the system would be "life-changing for small business, and the next evolution of technology", Edwards said.

Having demonstrated the system to UK accountants, Edwards is already used to being met by folded arms and the question, "Why should we change from Sage 50?" To be disruptive in the market, Xero not only has to match the incumbent feature-for-feature, but has to offer something more, he said.

"Xero is a completely different way of thinking for accounting software. It's more an information system that uses the net to change the nature of accounting for small businesses.

"If you ask a small businessperson about how they do accounting, they hate it. But if you ask if they want information about where they are with debtors, cashflow and who they owe money to, they want to know more. We've put all of that on Xero's dashboard, so they can see where they are with a graphical snapshot."

While the Microsoft Outlook-style interface has become the norm for desktop accounting systems, Xero goes for a simpler 2D look more suited to web browsers. The graphical elements are accompanied by six operational modules, accessed by tabs above the central screen area.

Xero employed PlayStation interaction designers to give the system the look and feel of a game and make it "as low touch as possible", Edwards said.

To encourage regular use, the monthly £29 Xero fee covers an unlimited number of users so that company owners, bookkeepers and employees can access it. There is no extra charge for accountants, and additional companies can be added for £15 a month + VAT.

"If it's easier to do, small businesses will do [their accounting] more frequently and you can get an up to date, real time accounting system. Because it's on the Web, you can access it from anywhere - that starts to do interesting things," said Edwards.

There is a second Xero interface for accountants under a separate screen tab where they can access ledgers when they like, do monthly adjustments and balances, VAT returns and collect data for management reports. As an additional incentive, Xero is working on a set of final year accounts formats that can be output direct from the system.

"We don't think there's another accounting application that does the nominal ledger the way we do. It's based not so much a chart of accounts, it's database modelling, so you can do what you want," explained Edwards. The accountant can import a chart of accounts from Excel into the system, with all the underlying codes. But a business user can type in the first few letters and a named account such as "Travel" will appear on screen. Users can also add accounts on the fly, add new codes and descriptions, and choose which elements to watch on their graphical dashboards.

The program has some other slick features, including an expense entry and authorisation module, plus the ability to download bank statement data and run automated reconciliations. The core application is updated on a fortnightly basis, so new features and interfaces should come through very quickly, Edwards promised.

As an accountant himself, Edwards is keen to work with UK practitioners, but is not expecting them to resell Xero - which is what other software as a service providers tend to do. Xero plans to market itself directly to small companies, but he expects advisers to see the system's potential.

"The accountancy profession in the UK is in a really nice position. Thirtysomething guys are coming through as partners who don't want to do compliance work for the rest of their careers. They're younger, willing to risk more and trust technology. I think a lot of them have taken onboard comments about the need to offer value added services," he said.

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By User deleted
09th Mar 2008 13:17

still not proven as disruptive ....
You may be right about being illogical but nothing in your posting backs up this statement. The problem with leaving much unsaid is that the audience remains in the dark

Business models - chargeable ones are not new and the 'free to air' approach (advertising revenue) is becoming more accepted; not revolutionary

'..600 year old methodology..' - some of us began addressing the Software Service concepts back in 2000 & earlier; way before others joined the show

I would challenge your 'green field' statement. Surely both suppliers are operating on a 'brown field' basis because they are delivering a flavour of a mainstream product on a well defined existing platform using tried & tested delivery methods. On the basis of Christensen's work, this is a natural progression (sustaining) and cannot be classed as 'disruptive'

To analyse each part:

accounts packages are mainstream & have been for many years - a different 'look & feel' has been adopted by many over the years but underlying concepts have not changed

As for 'look & feel' - Intuit introduced an alternative non accountant user friendly approach many years ago on the desktop

the concept of SaaS may have been 'disruptive' at one time, but that was 7-10 years ago and one can tell how mature it is by the fact that M$ has currently woken up to it

'..our signups tell a different story..' - the whole point about 'Disruptive Technology' is that it is so far off track (advanced?) that it simply doesn't attract this sort of uptake because it is outside the comfort zone of many

By definition two similar products cannot make the same claim - to be classed as disruptive in the same area they must be mutually exclusive. For example are they as ground breaking as the GUI conceived at Rank Xerox which evolved into Windows - this was truly disruptive?

I am sure that both products are probably very good but quite frankly after taking the above into consideration they don't stack up as being disruptive

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Dennis Howlett
By dahowlett
09th Mar 2008 00:17

Drunk in frist class?
@jc - you love to stir the pot but on this occasion you're way off base with a wholly illogical argument. Fact of the matter is that new business models are being created that are disrupting the status quo. You may not see it but I do about which I'll be giving explicit examples in a future post on AW.

You may see 'self sustaining' but I see green fields. We're obviously not looking in the same place but that's OK. While much of the profession continues navel gazing at a 600 year old methodology, companies like Xero and others will be busy quietly eating their lunch.

As to FreeAgent: our signups tell a different story. I'd invite you to check this out to see what people who use this stuff think. At the end of the day, it doesn't matter what I say, it's what customers say that really counts.

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By User deleted
06th Mar 2008 16:59

Refer 'The Innovator's Dilemma' ....
Hamish

In the context used

'.. technology entrepreneur Rod Drury ... to create a "disruptive" Web-powered accounting system ..'

indicates that 'disruptive technology' is being referred as defined in 1997 by Clayton Christensen in 'The Innovator's Dilemma'

The following links expand

Wikipedia: Disruptive_technology

What is?: Disruptive technology

Innovator's Dilemma by Clayton M Christensen, extract covering "disruptive technologies versus rational investments".

To summarise

Sustaining technology relies on incremental improvements to an already established technology

Disruptive technology lacks refinement, often has performance problems because it is new, appeals to a limited audience, and may not yet have a proven practical application

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By User deleted
06th Mar 2008 13:17

Not more 'disruptive' claims ....
Yet another accounts system labelling itself as 'Disruptive'

'.. create a "disruptive" Web-powered accounting system ..'

Here is another:
Opinion: Tales from the IT Edge by Dennis Howlett about his involvement with FreeAgent Central.

Neither of these can really lay claim to this status - they are just an updated approach to a well trodden path (i.e. 'sustaining'). New they may be - disruptive they are not

Anyway by definition they cannot both be 'disruptive' !

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By Hamishxero
06th Mar 2008 15:33

Disruptive = Change
Disruptive means (according to the Cambridge Dictionary online) causing trouble and therefore stopping something from continuing as usual, and that is exactly what Xero (and FreeAgentCentral who you also reference) are doing for small businesses and freelancers respectively. They are saying you don’t have to ‘do’ your accounts like an accountant, but you can instead manage your business finances in a way that suits how you work. That is stopping things ‘continuing as usual’.

So if both solutions are causing trouble (to the existing approach of doing accounts for small businesses – such as using PC-based solutions) then by definition they can both be disruptive.

We’re not ‘sustaining’ anything as users are ditching PC based solutions that are designed for ‘accounting’ and switching to our online system that focuses on ‘business information’.

I like the debate, it is very helpful for all of us.

Cheers

Hamish
Co-founder of Xero

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