From tech hero to Xero

Technology entrepreneur Rod Drury, who has just been announced as EY Entrepreneur of the Year, is building in confidence, networks, and ideas that start local and end up global. The straight talker from Havelock North discusses his Ngāi Tahu roots and business philosophy with kaituhituhi Matt Philp.

Rod Drury strapIn the New Zealand business scene, Xero chief executive Rod Drury is regarded as a  trailblazer — a serial entrepreneur who has written his own playbook on how to build  a tech company that takes on the world. Among the general public, Drury is better  known as that bolshie business guy who swore at Greens co-leader Russell Norman in  a heated exchange on Twitter, and as someone who is equally upfront with his views  on the country’s economic direction. Less well known is that Rod Drury is Ngāi Tahu.

It was Rod’s father Ken who uncovered the detail of the tribal affiliation — a  whakapapa that goes back through ancestor Sally Harper to 1848 kaumātua Pakinui  (Mrs William Harper), with ties to the marae at Waihao, in the Waimate district south  of Timaru.

“As he’s got older Dad’s taken a real interest in tracing his roots,” says Rod, who was raised in Hawke’s Bay with only a vague knowledge of having some Māori ancestry. “For me, it shows you really belong in New Zealand. More and more I have this feeling of pride in New Zealand, and an awareness of the characteristics that make us different from anywhere else.”

Drury and his wife have put their three children on the Ngāi Tahu register. “I think that heritage becomes more important to you as you get older, and you want that for your kids as well. Hopefully in their 20s and 30s they’ll become interested in tracing themselves back.”

As for personal journeys and pilgrimages, those will have to wait — Drury has ambitious plans to build Xero into New Zealand’s first genuinely global tech company. Given his entrepreneurial history, you wouldn’t bet against him.

Founded by Drury and accountant Hamish Edwards in 2006, Xero hit the market offering a new way of doing the books for small businesses. Where its big international rivals were still producing desktop-based accounting software products, the Kiwi venture charged a monthly fee for an online-based alternative. It’s a software-as-service company — in other words, conceived to take advantage of the technology shift to cloud computing, in which services are delivered through the Internet.

“Given that New Zealand is named after a cloud, we figured we’d be well-placed to be the best in the world at it, and we are. We’d be one of the top cloud companies in the world — certainly one that people in the know globally are watching very closely.”

Among those names are Silicon Valley billionaire Peter Thiel, of PayPal and Facebook fame, who has invested several million dollars in Xero (it was Russell Norman’s attack on Thiel, who owns a data-mining company, that earned Drury’s ire). As well, TradeMe founder Sam Morgan is on Xero’s board, alongside the likes of former Kiwibank chief Sam Knowles.

The mantra among Xero watchers is “early days, but lots of promise”. More critical types might add a rider: “When’s the payoff?” Within a year of launching the company went public, and was immediately a market darling. Notwithstanding a recent dip, Xero’s market capitalisation passed the $2 billion mark this year. Revenues last year doubled to $39 million, and small businesses here and overseas are beginning to migrate to Xero, with paying customers approaching 200,000.

And yet Xero still hasn’t turned a profit, a fact that has some wondering if the company will be able to deliver on the hype. Drury has responded with typical vigour. Named the New Zealand Herald Business Leader of the Year 2012, he told the newspaper that for now, growth comes first.

“When you look at it in the cold light of day — and the board does this every month — the right thing to do is use the capital we’ve been given to grow the business. And yeah, doing that publicly in the New Zealand share market, people are going to throw some arrows, but you can’t worry about that too much.”

He’s a confident character, the Xero man, but he’s earned that right. Raised in Taradale, Napier, eldest son of a typical middle-class family, Drury was always hard-working, his father Ken says, “Everything he did, he did himself, although we supported him.

“When he went to Varsity in Wellington in the 1980s he’d come home and work in the woolstores or go haymaking to pay for his uni. He was keen on rugby and was in the surf lifesaving club, but he was never a natural sportsman — he had to work at it, and he was a great team player.”

After graduating from Victoria University with a Bachelor of Commerce and Administration majoring in Accounting, he spent the rest of the eighties and early nineties with Ernst & Young, work that involved plenty of contact with the Māori Trustee. “It was incredibly interesting,” he says of the experience. “One thing that really struck me was the fragmentation of the land, and how once it got to a certain parcel size it reverted to the Crown. That seemed to me incredibly unfair.”

In 1995 he made his first big entrepreneurial move by co-founding Glazier Systems, an early Wellington-based software development company that specialised in developing systems for Microsoft Windows. Sold four years later for $7.5 million, Glazier not only launched several other internet entrepreneurial careers and companies, it gave Drury the experience and capital to have another crack.

AfterMail was the real deal — an email management innovation that helped businesses to capture, retrieve and analyse all their email information. It went on to win a big international tech product award, something of which Drury is still proud. As important to the Xero story was that he was able to cash out handsomely when AfterMail sold for $US 45 million.

“It was never designed to be a long-term business. We built it up to sell it to get some money,” says Drury. “The other thing we wanted to do was to prove that we could build world class technology in New Zealand and be as good at developing products as anyone else.”

By 2006 he’d achieved both goals, exiting with a Microsoft global product award, plus a rather large cheque.

Now for Xero. “Being a true serial entrepreneur and having done four or five businesses, you get more confident every time. Everyone sees patterns, but once you’ve put your money in and really jumped on something and had success, you see those opportunities and have the confidence [to exploit them]. And we could see a massive technology shift happening, with everything moving from the desktop to the cloud.”

When he speaks about his dream for the company, you get a better sense of what makes him tick. It’s not about making a big pile of cash, says Drury of Xero, which has grown to 500 staff, with offices in the US, the UK, Australia, Auckland, and Wellington. “Business for me is not work — it’s more like a sport, and always fun.”

With Xero, there’s a chance to build a company of true global clout, he says. And this time it’s about the long haul. “Selling AfterMail gave us the ability to look after the family and all those things. But the next move was always going to be to build a long-term sustainable business. We’re not building Xero to sell it. We want to be long-term operators of the business.”

Perhaps this is where his values come closest to those of his iwi. A few years ago Drury helped the investment arm of Ngāi Tahu with some advice. He admires the commercial focus of the organisation and what it has achieved with its Treaty Settlement. “Anyone associated with Ngāi Tahu has a huge amount of pride. They’re successful and progressive and they get out there and do things.”

But it’s not only the iwi’s commercial success and entrepreneurialism that he can relate to. “What I feel particularly aligned to is this sense of taking a long-term, custodial view of things. I’ve always thought long-term — always felt that we don’t own stuff, we just look after it for the next people.”

Drury also notes that operating in the cloud, Xero is effectively a custodian for people’s data. “Those are characteristics you can trace to where you come from, I think.”

Drury predicts that Ngāi Tahu will go from strength to strength in the economy in coming years. And he believes that New Zealand companies could “take a real lesson” from the multi-generational approach to buying and building assets adopted by the iwi and other Māori business organisations.

He brings it back to Xero. “What I particularly love about this business is that it is purposeful. We’ve taken a design-led approach, thought about ‘How do we make things easier for small businesses?’, and delivered on it. People tell me they have gone from hating doing the books to loving it.”

And it is those small businesses, Xero’s target market, that constitute the backbone of an economy, he notes. “They’re the biggest contributor to GDP, and if we can make them more productive, then we can materially move the needle in terms of productivity at the national level. And we are starting to see that in New Zealand. It’s nice to be building a business that is so purposeful and has a whole lot of spin-off benefits.”

Within the fledgling local tech scene, for example, Xero has effectively created a new market and opportunities for a host of smaller operators. “One of our key values in the business is partnership and advocacy. There are 250-odd companies that link into our ecosystem, and it’s always felt natural for us to leave plenty on the table to really get that ecosystem working. We know that’s the right way to do things, and it’s turned Xero into more than just a software product — we’ve really become a business platform, with a lot of other companies getting started and making money.”

As well, Drury’s success in taking Xero public has become an inspiration for others in that scene. Inventor-entrepreneur Grant Ryan (Ngāi Tahu), who with brother Shaun and others founded the recently-listed Christchurch venture SLI Systems, says Drury has blazed a trail. “We don’t have to explain software-as-service to the New Zealand market because of Xero,” says Ryan “Rod has helped educate the market, and that has enabled us to get some resource to have a good hard go at it.”

For Drury, seeing the likes of SLI Systems, Wynyard Group and Snakk Media listing this year has been heartening.

“When I was in my 20s I used to read all the Silicon Valley books and one of the things that got drummed into me was that as a business person, especially in the technology space, the ultimate was always to take a company public and do an IPO [initial public offering]. It’s been incredibly satisfying, and I don’t think I would ever have been fulfilled if I hadn’t done it. It’s fine to go build a business then sell it, but at the end of the day doing an IPO and running a public company is an awesome experience.

“Why? Because it gives you all these other chess pieces to play with. You can implement strategy, you can really invest, you can do acquisitions, you can use the markets for PR and building brand, you can bring in strategic investors. It is very, very stimulating.”

Running a public company also gives Drury a profile, and he hasn’t been shy to use it. A renowned networker, he is also in demand as a speaker and commentator, and if he’s not globetrotting on Xero business he’s speaking at a tech summit in Hong Kong or putting himself about in the blogosphere.

Among his many preoccupations is the lack of a clear national technology strategy, and he has been lobbying for the Government to appoint a kind of national Chief Technology Officer, with a mandate like that of Chief Science Advisor Sir Peter Gluckman.

“As a business person you’re naturally pretty free market — you just want to get on and do things. But as you do bigger ventures you start to see opportunities where with more planning and coordination we could do a whole lot better. The one I’m particularly hot on is this: we are the country that is furthest from anywhere, so why wouldn’t we try to get the best possible connectivity into the big markets?”

It’s a reference to a low point of Drury’s recent career  — a failed bid to build a $400 million undersea cable between Auckland, Sydney, and Los Angles. Known as the Pacific Fibre project, it was backed by the likes of Thiel, Sir Stephen Tindall, and  Sam Morgan to improve connectivity and provide competition to the Southern Cross Cable operated by Telecom.

Drury was gutted when Pacific Fibre folded last August, and retired briefly to lick his wounds. Now he believes there is a chance the project can be revived as a public-private partnership, with a major government contribution and investment by the New Zealand Superannuation Fund. He has been meeting Government ministers and Treasury to make his case.

“I’m passionate about this cable, because it represents a step change and it’s about being able to better communicate with people,” says Drury, who cites benefits such as multi-party video arising from increased capacity.

“We seem to have forgotten that we are a small set of rocks in the South Pacific,  and it is vitally important that we export. People of working age should be thinking about how they can earn those overseas dollars. We should as New Zealanders wake up every morning and think: ‘Man, I’m going to send an invoice overseas today’. That’s how we grow wealth and make the boat go faster.”

Drury may clock up the air miles but he’s a grounded character, making his own travel bookings, answering his own phone and famously always up for a surf. He could be in Silicon Valley, but he prefers Havelock North, where “there are no parking meters and there is fresh pāua and crayfish and fish whenever you want it.”  He works at least part of every week out of a home office connected to the world by ultra-fast broadband rather than wait for the official fibre rollout, Drury paid the local provider to bring it to his door, in the process sponsoring a link to the neighbourhood school).

He’s an evangelist for this kind of connectivity, using his own lifestyle and the success so far of Xero as examples of what’s possible in a wired world. “I love the scale that technology offers you. The ability to prove ourselves globally has been a real driver for me.”

His response to people who doubt you can build a global tech company from New Zealand? “We’ve done it.”

Photo courtesy of Unlimited.