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What all small and medium businesses have to learn from Xero’s impact on Accounting

A couple of years ago, if you mentioned ‘software’ to someone working in a small or medium sized business (SMB), the likes of Word and Excel most likely spring to mind. Recently though, names like Xero, Zoom and Office 365 (Teams etc.) have entered our vocabulary and become indispensable tools of the modern workplace.

We’ve all seen the change, but few realise that this is just the beginning. Xero, Zoom and Office 365 are all part of a new generation of software, called Software-as-a-Service, that is emerging across all industries in a variety of applications.

In some cases, like Xero in the accounting industry, these technologies are having implications for SMBs that can't be ignored. In this article, I explain what these are and why utilising SaaS tools is crucial for SMBs moving forward.

What is SaaS?

Before getting started, for clarity, SaaS is simply software that is hosted in the cloud and paid for on a subscription or usage basis. Software in itself is nothing new, but the SaaS model is, enabling businesses to access the software from any device, while paying for it in line with the value they receive. Sounds simple, but this is having big carry-over effects.

Xero's Story

Xero’s story illustrates the benefits of the SaaS model. Before Xero, accounting was done with Excel spreadsheets. Accountants and business owners alike would have to create their own spreadsheet templates and manually enter in various data like invoices, payroll and transactions before going through and auditing and consolidating this information to produce a set of financial statements.

Setting up and maintaining all of this required a substantial amount of know-how (how to use Excel, set up formulas etc.) and manual effort (data entry, reconciling etc). On top of this, the manual aspects of the process created the opportunity for error as any missed step or misentered value could trip things up later on.

Then Xero came along. Xero created software that focused specifically on the accounting workflow. Instead of everyone having to set-up their own templates and processes, Xero created an easy-to-use system that could be used off-the-shelf by almost anyone with very little training.

Unlike other software coming beforehand, Xero was also hosted on the cloud. That meant users would receive the latest version of the software without having to constantly update their systems and pay for upgrades. Another big win was that small and medium businesses didn’t need to have their own IT staff or technical support to facilitate the software.

As Xero was purpose built for accounting, it was also able to streamline and automate a lot of the manual processes that went on around spreadsheets, saving time while also reducing the opportunity for error.

The combination productivity gains and ease-of-use were obviously a hit. Small and medium sized businesses began adopting Xero rapidly and, ultimately, Xero became the industry standard we know today with over 2.7m users globally.

The rise of Xero had implications for accounting beyond productivity though. Those who adopted Xero were also able to offer customers better value and move forward, while others stood still. The difference in value between those using Xero and those not became apparent and customers started to switch to those using Xero. This meant those who had stuck with traditional work methods experienced disruption.

In an interview, a Managing Director at Xero in the UK, observes this playing out firsthand, “I think accountants are disrupting the accountancy market with products like Xero. There are about 25,000 accountants in the UK, and we’re working with about 3,000 of them. It’s those 3,000 that are disrupting the other 22,000 by coming to their clients with a completely different value proposition.” 1.

In other words, it wasn’t technology alone that caused disruption in the accounting industry, it was accountants using technology that did. They raised the bar, offering more value to customers, and naturally won more business as a result.

What can businesses in other industries learn from this?

A similar dynamic is set to play out across all industries. Xero’s success has inspired a new generation of SaaS tools for workflows of all kinds. New technologies are being developed faster than ever before, enabling new levels of productivity without the need for tech support or IT teams.

Businesses embracing these technologies are raising the bar while others are struggling to remain competitive. That’s why it has never been more important for small and medium businesses to consider how they can be using technology to improve.

My own experience with other SaaS tools

I’ve had to come around to this in my own business, Rico. I started out reluctant to pay for various software products, but after a couple of colleagues in the software industry repeatedly suggested using Pipedrive to help with our sales process, I decided to start a free trial. My logic was that I didn’t like sales and anything I could do to give me a clear workflow and save time would be worthwhile. Plus it was a free trial, so the only cost was my time evaluating the tool.

When I started using Pipedrive, the first thing I noticed was that the workflow it had made the sales process itself, which I had very little idea about previously, make a lot more sense. I knew exactly what I was trying to do at each step, and where I was within the process with each customer at all times.

On top of this, there were also handy automations that saved bits of time here and there that soon add up. My favourite of these is the function that lets others see my schedule and book a time for a meeting with me. It sounds simple but it saved a lot of back and forth over email and that's a job I didn’t miss at all.

So I liked Pipedrive, but was it worth paying for? I did a back of the envelope calculation and quickly worked out that the monthly subscription would easily cost less than the time it saved me. I also liked that Pipedrive gave me time back and enabled me to focus on the work that’s most important, so I signed up.

After this experience, I became much more open to adopting similar technologies. In all honesty, it wasn’t always a success, there were definitely cases where a tool didn’t deliver the desired result. But overall, using various technologies made me far more productive and enabled my time to go further. That easily compensated for any time spent on the occasional free trial that didn't work out.

The bottom line

Today, we use over 10 SaaS tools at Rico, which is by no means high compared to other software businesses who are, unsurprisingly, early adopters of software. These tools help us build and test our software, run our servers, do our accounts and perform various sales and marketing functions. Our small business benefits substantially from SaaS tools and we haven't looked back.

Thanks for reading. This was written by Foss, co-founder at Rico, where we’ve developed a SaaS tool for planners and other professionals to take the admin out of preparing resource consent applications. Check it out here.

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