Diligent vs Xero – Rod Drury responds

Xero founder Rod Drury submitted this response to David Williams' NBR Weekend Review piece Comparing high-flying Xero and Diligent - Editor.

OPINION

Comparing Diligent and Xero is a valid exercise.  It¹s great that there are software companies on the NZX so that New Zealand investors begin to understand the software industry.  So we¹re happy to contribute to the discussion.

Software is an industry in itself so there are many models. Diligent has identified a good space where they manage board papers for larger businesses. We¹d call that enterprise SaaS (software-as-a-service). Sales are made by selling into those large corporates. 

Their model is quite different to ours in terms of sales model, market size, investment required and potential.

If you have used both Diligent and Xero you can see the difference in scale of the products. Diligent spents $1.5 million on R&D, so it is a much smaller product.

Last year they sold into 570 new accounts. They are doing well. We added 50,000 in the last 10 months. That¹s a completely different sales model,customer size, automation model and support structure.

Xero is building an accounting platform to sell to millions of small businesses.  Our competitors are much larger.  Intuit has 8000 staff and MYOB had over 1000 when they were purchased. The potential size of the market is tens of millions of customers. 

Having done businesses before that quickly get to profitability we deliberately decided not to with Xero and have been very up front about that.  We are trying to build a multi-billion dollar software company from New Zealand.

We¹ve managed to raise enough capital to fund that growth and our shareholders have confirmed that they want us to continue to grow.  We've already hired well over 100 people this year and will continue to hire aggressively for several more years.

Our growth in customers and revenue are providing comfort that our strategy is working and we have said that we have enough cash to fund our business plan.

While companies like Xero are new for New Zealand, we are nothing out of the ordinary in the USA.  Yammer just sold for $US1.2 billion with revenues around or less than ours.  Square, the payment dongle, is also comparable. MYOB recently sold again for $A1.2 billion.

No one would like to break even more than us, but we¹re not in that phase yet.  To have the chance to create a significant global company we need to continue to grow our capability, product offering and global teams. And sure, we'll take some flack from people that aren¹t used to that.

If investors don¹t believe in what we¹re doing they shouldn¹t invest in the stock.

We hope that others will follow our path and use the public markets to raise significant capital to have a go.

If we want New Zealand to be better we need to grow some business of scale.

We need more Diligents and Xeros.