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From Xero to Hero: Gary Turner has his head in the cloud

It is the dream of every startup to overtake the incumbent, ..

It is the dream of every startup to overtake the incumbent, dominant player in its field. Facebook swallowed Myspace; Uber is usurping taxis; Spotify killed the CD. London’s fintechs are chipping away at just about every area of financial services.

We are witnessing an era of great technological change.

Some of the present disruption is quite sexy – a revolution of ideas, stories of David vs Goliath, the underdog sticking it to the man. Few people would argue that accountancy software is sexy, though. Try mentioning cloud accounting software in your Tinder profile, and see how many matches you get.

Gary Turner, co-founder and managing director at Xero, would disagree. Starting with just £50,000 in 2009, today Xero UK turns over some £30m, has trumped Sage for the top spot in its field, and surpassed 250,000 UK small business subscribers. Pretty sexy stuff, if you’re into that sort of thing.

Turner is a 20-year software veteran who had his head in the cloud while the rest of us were getting over floppy disks. Sat at his desk at Microsoft early in 2009, the self-described “lapsed Glaswegian” received a LinkedIn message.

“I opened it up, trucking away at Microsoft. It said: ‘we want someone who can get the business going in the UK’. I didn’t read the rest of it. I quit my job at Microsoft and booked a ticket to New Zealand. I’d never done a startup – I’d just turned 40 and I thought if I’m going to do it, I’m going to have to do it now, so off I went.”

Xero was founded in New Zealand by a chap called Rod Drury, who built the firm with the intention of taking it global. It listed on the New Zealand Stock Exchange (NZX) with no customers two weeks before the financial crisis, but suffered little. A few years later, the firm is dominating, due largely to being years ahead of the curve with a cloud solution.

The chancellor went part of the way to addressing the UK's dismal productivity in last month's budget (Source: Getty)

Today, Turner is confident that his firm’s platform can go some way to addressing the UK’s flagging productivity by helping the little guys – the UK’s SME sector.

“The contribution they make to the economy is huge, and therefore, we only need to effect a small improvement like five per cent. Imagine if we can improve the productivity of all SMEs by five per cent – that’s massive at a macroeconomic level in terms of GDP and productivity.”

A recent survey from tax consultancy Accounts and Legal validates Turner’s thoughts. It found nearly a quarter of small businesses in the UK are sacrificing higher rates of growth and productivity by running their internal accounts through outmoded systems. Out of 10,000 surveyed, some 22 per cent chose paper over something as basic as Excel, or accounting software such as Xero.

“Small businesses and startups generally have really bad systems and processes,” says Turner. “They’re on spreadsheets and scribbled notes, and they kind of lose track of things.

“When you’re sat at the kitchen table and you want to set up your own business, you don’t ‘go right I need some accounting software’. You don’t do that, it’s not your priority, your priority is building the business.”

Out of 100 business startups today, only 40 of them will still be here in five years

By freeing up time shuffling bits of paper around, it allows firms to carry out higher value work, which seems obvious, but says Turner, is a product of a dearth of digital skills among smaller businesses. According to a report from the British Chambers of Commerce, three quarters of UK businesses reported a digital skills shortage among their employees. The chancellor went some way to address the gap in last month’s Budget, focusing on extra funding for artificial intelligence, skills and technology, to boost economic growth.

It’s not just productivity though – it’s a case of business survival.

“We’ve done lots of research with the accountants helping SMEs, and the SMEs themselves. The survival rate – if you look at the Office for National Statistics – out of 100 business startups today, only 40 of them will still be here in five years.

“And we look at the longevity of businesses using Xero, and 88 per cent are still here five years later. Obviously we cannot claim causality there,” he chuckles. “But I’m happy with correlation.”

The coming years will be tough for UK businesses – Turner describes the “perfect storm” of approaching legislation threatening small firms. Making Tax Digital is just one of the myriad of incentives and regulations small businesses have to worry about. The idea is to abolish paper, as HMRC catches up with the digital age. Rather than filling in reams of forms annually, “like the sixties,” paying your tax will be an ongoing event.

Xero can help firms weather the approaching storm, Turner insists.

“If we can make small businesses marginally more successful, that’s good for everybody. We make some money, they get some software to help them achieve their potential. At a macroeconomic level, that feels really purposeful,” he says.

Read more: A helping hand in solving the UK’s ‘productivity puzzle’

While Turner would “prefer to help out the little guy,” in a twist of fate, there’s no denying that the firm is becoming one of the big guys. Xero is, at time of writing, facing a shareholder revolt over plans to delist from the NZX, remaining only on the Australian Stock Exchange. The move will give it “access to a broader range of investors”.

When I caught up with Turner two weeks ago, I asked whether, given the firm’s success, it would consider listing in London or New York?

“It could happen, it could … the next logical question would be: would we ever consider listing on the London Stock Exchange of Nasdaq? And I think both are certainly considerations, but not in the immediate term. We’re building a significant business here. Personally, I would love that we do that one day. But we’ll have to wait and see. Who knows.”

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