Xero highlights the role of the modern software ecosystem

I recently caught up with Gary Turner, co-founder and managing of director of Xero. I was interested in meeting him as Xero has a reputation as the company that broke all the rules of small-business accounting. I’m obviously not talking about anything dodgy here – simply that it streamlined financial management and made it a whole lot more user-friendly by rethinking processes for a connected world. As Turner pointed out, it’s about providing seamless connectivity to everyone that matters to you in the context of small business financials. This includes your accountant, your bank, other financial service providers and, not least, solution providers who allow you to enrich or extend your accounting system.

The reason this strikes a chord with a lot of small business owners and managers is because financial accounting has traditionally fallen into category of ‘thankless chore’. Too often it was about scorekeeping, using software with an almost 18th-century feel that ran on an isolated PC in the corner of the office. It involved excessive amounts of paper, transcription, manual reconciliation of numbers from different sources and so on. It was easy to make mistakes, and hard to find and fix them.

And if all this was delegated to a bookkeeper, accounting became just a black box that periodically shot out reports that were never quite what you needed, and were probably too late to act on. Meanwhile, preparing the end-of-year books for your accountant to work on was always a nightmare.

Enabling the ecosystem

When you consider how Xero has helped its clients put most of this behind them, it’s easy to see it as predominantly a technology play – a more modern replacement for those clunky old PC packages. What’s really going on, though, is ecosystem enablement. For example, you can also look at Xero through a financial advisor lens. If you are an accounting firm with a trusted login to all your clients’ finance systems, which is essentially what Xero enables, your relationship with each customer becomes more intimate and continuous.

This has obvious benefits for both parties; you can track trends, anticipate needs, and sell additional services to meet them, increasing your revenue while helping the customer jump on opportunities and risks early. From a complimentary solution provider perspective, a cloud-based ecosystem like Xero’s allows you to tap into a well-defined market, and service it efficiently.

The big takeaway from all this is that when making technology decisions, it’s important to consider the ecosystem you are buying into. I know this is not a new principle – SAP’s attraction back in the 1990s was largely driven by the consulting and skills community that grew up around it, and even today, Microsoft Windows is still important to many businesses because of the ISV and OEM partners that support it. And we obviously can’t forget players like Salesforce.com that has one of the largest and most vibrant cloud-enabled ecosystems on the planet.

The element that is new – and Xero is a good example of this, in the way it has brought financial advisors and banks into the equation – is that ecosystems in today’s connected world are not just about technology partnerships.

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