What Xero learned after 15 years of building software for SMBs

Building for SMBs requires embracing “coopetition.”

There are hundreds of SMB-focused software platforms in the market today offering freemium or affordable tiers for various needs. Yet historically, this hasn’t been the case, as early SaaS builders focused on the big contracts associated with enterprise customers. And many businesses still struggle to target and sell to small businesses.

When trying to understand the different needs between small businesses and enterprise customers, you don’t need to look much beyond the resourcing at each type of company.

Xero was one of several companies to buck this trend during the rise of cloud computing, focusing exclusively on SMB customers since its founding in 2006. More than 15 years later, the company is still focused on building for SMBs, a responsibility that now rests with Chief Product Officer Anna Curzon. Speaking with BetaKit, Curzon explained the challenges of building what she calls a “purposeful platform” for small businesses.

The unique problem of building for SMBs

When trying to understand the different needs between small businesses and enterprise customers, you don’t need to look much beyond the resourcing at each type of company.

“[Small businesses] can’t afford the legal department, they can’t afford an audit department,” said Curzon. “They can’t afford the marketing department or a [people experience] department. They just want simplicity and to be working on the business, not necessarily in the business.”

From a product perspective, this required Xero to think differently than enterprise software builders.

According to Curzon, the beginning of any Xero product starts with building “human first” – a business value at Xero incorporated not only into how employees treat each other, but how they treat customers. From a product standpoint, this means not just building a platform for the user’s end goal but also their mindset and bandwidth. For example, Curzon explained that if a small business customer is using a tax feature, it’s likely to do with tax preparation, so the user experience design needs to take that into account.

“Are they going to be on the go when they’re using this?” asked Curzon. “They are likely to be using this at the pointy end of tax time. Mentally, it’s all about time and simplicity and just getting it done.”

Curzon said the next step for building Xero products is thinking not just about the customer, but the resources they have access to. While both small businesses and enterprise customers might use multiple software platforms, SMBs don’t have the team or resources to integrate them. This insight led Xero to focus on building “open” products, meaning purpose-built for integrations with Xero’s API, leveraging cloud technology and open data flows.

“That’s saying ‘we are creating this platform to lift you up, small businesses,’” said Curzon. “So come on in. Anyone that can help, we want you. And even if it’s ‘coopetition’, we want you.”

With so many potential data flows to integrate, the next step for Xero is ensuring the product has what Curzon calls a “seamless” experience layer. For instance, Xero has multiple analytics dashboards to help SMBs understand how their business is tracking. However, the product challenge is ensuring the data is presented in an easy-to-understand and simplified way.

“Our job is to make it not look all higgledy-piggledy if we add in all these different ecosystem partners and integrate them, but to make it feel at the experience layer super seamless and easy,” Curzon said.

The third prong of Xero’s product philosophy concerns data ownership. Curzon said Xero learned that building trust with SMBs is the only way to build a lasting business relationship with them, and one way the company builds trust is by committing that any data within Xero is owned by the customer, not the platform. Curzon said that when a customer trusts that Xero will respect their data sovereignty, that opens an opportunity for Xero to move beyond pure accounting solutions and into overall business growth tools for SMBs such as inventory management.

“What we find is when we’ve got those compliance needs sorted and that we’ve got good data coming in, we can start to solve needs above and beyond accounting,” said Curzon.

Ready, set, regionalize

Now that Xero is a mature platform with multiple products and features, a lot of the company’s product work is focused on iteration and feature expansion. Curzon said Xero’s product team engages in multiple phases of development: the first phase is a ‘jobs to be done’ assessment where the product and product marketing team conducts discovery with customers. This is not just to identify a potential gap to fill, but also how Xero might approach the problem differently.

Next comes an in-depth brief, made by the product team for the brand and marketing team, explaining the customer, use case, solution approach, and more. Curzon explained this step helps the company avoid building the wrong solution or one that offers no extra value for Xero’s customers.

“Otherwise, we could blindly walk towards a product release and it’s like, ‘well, it’s great. You’ve ticked every box, but how is it different?’” said Curzon.

After understanding the problem, possible solution, and marketing plan, Curzon noted the company follows a product-building process Xero calls “ready, set, go.” She noted that the process looks like building a prototype for the whole product first, engaging with key stakeholders. You might think this is always the business owners themselves, but Curzon explained that it’s often accountants or bookkeepers first—the people who will be using a portion of the product and educating end users.

“We know that they’ll need to support their clients with a particular release and they don’t want to be blindsided,” said Curzon.

Once everything is tested, built, and ready, then comes regionalizing the product. Curzon explained that regionalization helps achieve two things for Xero: the first is meeting local compliance regulations around the world and the second is adjusting for how advanced (or not) a region is when it comes to technology.

For example, Curzon noted Canada is largely still in what she calls ‘wave one’ innovation, meaning people are still getting comfortable with cloud technologies, open banking is relatively limited, and the government hasn’t mandated digital technologies. So in Canada, Xero acquired TaxCycle, a leading tax preparation company where accountants and bookkeepers can enjoy a desktop integration with Xero to manage and file income tax returns for their clients. Over time, Xero will work with the TaxCycle team to enhance its localized cloud offering.

In the UK, the company already has a “Xero Tax” solution. But the country has open banking mandates and also requires reporting to its tax authority using digital software. So Xero recently released Xero Go to adhere to unique financial regulations in the country for sole traders, allowing them an affordable option to remain compliant.

“We need to be making sure that for each region we’re building a purpose-built roadmap to go ‘what is the next most important thing that we could deliver in terms of bringing value forward for that customer?’” Curzon said.

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Photo courtesy of Xero.

Stefan Palios

Stefan Palios

Stefan is a Nova Scotia-based entrepreneur and writer passionate about the people behind tech. He's interviewed over 200 entrepreneurs on topics like management, scaling, diversity and inclusion, and sharing their personal stories. Follow him on Twitter @stefanpalios.

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