Is it something in the water?
Countries around the world are regularly humiliated by New Zealand’s All Blacks. This despite the fact that the Kiwis draws on a reserve bench of just 4.5 million people, a fifth the size of Australia and a twelfth of the UK.
Whatever talents the little country has in producing rugby teams appears to be replicated in cloud applications. Paycycle (payroll), Vend (point of sale), Unleashed Software (inventory), Spotlight Reporting group (tools for accountants), Workflow Max (job management), GeoOp (field management), Xero (accounting) – the number of small-business-focused cloud programs that have gained traction, venture capital backing and in some cases acquisition is impressive given the customer base is so tiny.
What’s the secret behind the success?
A supportive community seems to be one of the key factors. During the early days Vend, Workflow Max, Unleashed and Xero demonstrated their systems at joint partner and client events and had regular catch-ups at a local pub where they exchanged stories and qualified leads and gave updates on where they were up to in developing their businesses.
“This helped immensely as we would exchange learnings of what was and wasn’t working, technical stuff too and even strategy sharing to some degree,” says Unleashed CEO Gareth Berry.
Berry admits that much of their success has come from riding in the wake of Xero which paved the way to economies of scale for the clutch of programs it calls “add-ons”. However, this meant following Xero’s business formula which places growth above profitability or even breaking even.
Xero turned to wealthy individuals and the share market to raise money while Vend and Unleashed found venture capitalists (Point 9 and Sir David Levene, respectively) to back them.
“If Vend and Unleashed did not raise capital, we wouldn’t be able to grow as we are,” Berry says.
Ongoing development work for government agencies has created a deep pool of talent in Wellington which helps foster entrepreneurial activity.
“In Wellington, being a government town, a lot of us work for consulting firms,” says Xero CEO Rod Drury. “You get to know your craft. People here have built tens or hundreds of line-of-business applications using the same technology stacks as for SaaS products.”
Attitude is another factor. New Zealand companies must think globally from the outset because the local population is too small to support them. In business jargon it’s a “sub-scale” country.
Drury also notes the number of successful tech entrepreneurs who have reinvested in more startups. Drury made his money in the $750 million sale of TradeMe and other winners such as Sam Morgan and Rowan Simpson have also backed cloud startups.
Drury has several other theories; bad weather is one of them. “Networks get accelerated in a small town with bad weather,” Drury says, pointing to Melbourne, Redmond (home of Microsoft) and San Francisco (home to Silicon Valley). “You get that indoor high culture, it suits software companies,” he says.
In fact Wellington gives the impression it is better at spawning successful cloud startups than Sydney, whose population is bigger than the whole of New Zealand. “The only thing I can put it down to is the Sydney weather is too good,” Drury says.
But once you remove Xero from New Zealand’s cloud pack the revenue drops off markedly. Marc Lehmann, CEO of Australian cloud accounting company Saasu, says Australia still outperforms New Zealand in dollars, even including Xero’s stellar performance.
Atlassian makes about eight times Xero’s revenue, for example.
“On actual revenue numbers adjusted for population I doubt there is much difference. When you add in CampaignMonitor, Business Catalyst, Spreets, Retailmenot, BrandsExclusive and a bunch of other Aussie successes I think you will find it could even be the opposite of your theory,” Lehmann says.
“Personally, (I think) they have some great tech people. They do great tech work not just rugby over the ditch,” he adds. An opinion which Saasu’s latest hire – a Kiwi – would no doubt share.