#30 How small businesses can overcome the biggest challenges

KRISTINA PODNAR, HOST: Hi everyone. Thanks for making time to join me here at the Power of digital policy where I'm delighted to welcome Rachel Powell. Rachel is the chief customer officer at Xero and is a strong proponent for sound customer experiences, which she says must resonate from the inside out, Rachael, so excited to have you, welcome.

RACHAEL POWEL, GUEST: Thanks, Kristina. It's fantastic to be with you today.

KRISTINA:  Well, and I'm looking forward to hearing your insights. In fact, before we just jump right in, maybe, you can just start off by telling us a bit about your background. And what makes you so passionate about service for small business because this is really, I'm not going to say, a niche area, but it's one that I find most people are very passionate about if they're in it for the long haul.

RACHAEL: Absolutely. Look, I think small business is a segment of the market. That's pretty traditional been underserved. It does stimulate so much about our economy globally, and it also is such a fantastic employer of the population. So I think when something like covid hits it is a segment of them off the market that's probably the most significantly compromised, and it's, therefore, a segment of the market that we as corporate enterprises need to be focused on supporting in the best way possible. So my background to answer your question I am I've been with Xero for five years. And for those that don't know, Xero is a cloud-based, cloud heritage company that was founded about 14 years ago to support small businesses in operating their financials in the cloud. So it's a cloud-native company, which means that it was launched in the cloud from the get-go. So a lot of other accounting software providers for small businesses first started their businesses on desktop and then have as have subsequently moved to the cloud. We were actually born in the cloud from the get-go, which meant that we were able to go global from day dot. We have customers and hundred and 80 countries around the world we have about 2.4 million subscribers we have about 3,000 staff. And as you mentioned in the intro, I am very passionate about the Inside Out philosophy. So what we mean by that is if we get it right on the inside and hire the right people and ensure we have real clarity on our purpose, which is to improve the lives of people in small businesses, their advisers, and communities around the globe. Then those people are going to be best able to serve our channel partners being since and bookkeepers and our end-user small businesses. So I'm really proud to be Xero. I started my journey at Xero as the chief people officer. So that was really about creating that sense of purpose and creating the culture where we had the right people on board. And then over the last three years, I've focused my attention more on the outside of the organization, and there's been a deliberate move to actually move all of the customer function under one executive so that I can look after everything from the brand when customers first find us through our digital website digital shopfront, we call it all the way through to sales helping customers get on-boarded and then communicating with the globe around what it is that we're doing to support small business and then educating and best serving our customers so that they can become successful in what they do.

KRISTINA: So I hear several different things there, Rachel. One of the things that I think is interesting is that you've aligned your function. It sounds like, to the customer. It's something that we're continually talking about with businesses, whether they be large or small businesses, but it sounds like you're really about aligning yourself with a customer throughout the entire life cycle. Was that always the case where you sort of always thinking that way along with sort of cloud-first or cloud-native or is this something that has sort of evolved over your 14-year history?

RACHAEL: Yeah, I think that's a great question, Kristina and I think it's something that has evolved. I think you're spot on. When we looked at this, we realized that we grew quite quickly. So like I said, we've got over 3,000 people in the company across five continents and with that what tends to happen when a company grows so fast, is that everybody focuses on the thing that they need to do in terms of delivering their objectives and when you grow so fast what typically happens is that people start to work in their silos and they just deliver that piece of the what I call the customer supply chain and what became very apparent was that it became very difficult for us to be able to nimbly react to customer needs by not making sure that we were looking at the whole holistic customer journey end to end and having an executive that was responsible for ensuring that we could make that process for our customers as frictionless as possible. So I'll give you an example when customers were coming through the digital website, and then they were looking at onboarding with our product that would go into an e-commerce flow, and then the e-commerce team or part of that team was actually sitting separately from the part of the team that was actually attracting them to the website. So it became clunky for the customer. It wasn't; we weren't ascertaining and getting the customer research with respect to what it was that they found difficult. So we spent a lot of time engaging with our customers and both customers being our accountants and bookkeepers, but also our small businesses to understand what would be the most meaningful for them to reduce that friction, and it's been an incredible journey. We talked about the fact that a lot of companies ship their fully cooked chart to the customer, and the customer has to fit into what works for the company, and we wanted to reverse that and make sure that we were being very customer-centric and actually doing what was right for the customer from the get-go.

KRISTINA: So that's something that a lot of small businesses struggle with, where they sometimes struggle with understanding how their customers see them and really adjusting their service or their delivery so that it is customer centric. I think perhaps that's even more emphasized right now during this pandemic and so recently saw your Twitter account. I think you had a quote out there that said innovation is born out of hardship. And I thought, well, you know what? I think that the pandemic is as hard and as hard of a piece that we can actually get to, especially for small businesses. What are some of the ways in which you're seeing SMBs innovating during this time? How are they dealing with understanding their customer needs and aligning to those customer needs?

RACHAEL: That's a great question as well. I think every cloud has a silver lining, and I think you could be some 2020 as difficult and challenging as a year as it's been. I think we're all going to learn a lot from it. So in terms of what we're seeing, so we commissioned a report with Forrester. So we worked with Forrester to go out and serve a whole lot of small businesses across the globe to really understand what they were doing to survive or thrive within this pandemic, and they're definitely is a really big discrepancy with respect to those small businesses that have been able to thrive so really looking at what they offer and how they needed to modify the way that they do things to best support their customers. There are others, unfortunately, that have been in industries that have been really hard, like travel and in some regions hospitality that have had to find ways to serve their customers, but I think in terms of to answer your question, I think what, you know, the companies that have been the most successful ones that have been really open to change they've been really, have had the growth mindset to think about. What is the customer need, and how can we best serve that need with all the restrictions that we've got in place? So there's a couple of themes that came out of the report that we commissioned that are fairly consistent across the globe one is the companies that have moved to digital both at the front end and the back end. So the companies that have been able to serve their customers enhanced their marketing efforts in an online environment and also being able to fulfill in an online environment. So we've seen e-commerce, for example, as an industry vertical that is really supercharged throughout this pandemic. And in fact, there's some evidence to suggest that there's, you know, a decade worth of innovation that's gone on in that space for companies that are still able to serve their customers. The second is creating that emotional connection with the customer. So this is where the small businesses that have been able to be to move towards a very highly personalized engagement with their customers and with that, you know, there comes a lot of technology to understand who the customer is, whether they've been served by the small business before, what it is that they've actually bought from the small business so that you can actually talk to them in a way that's meaningful and make sense to them. So increasing that digital marketing and that personalization is being really important. The third is using the power of the ecosystem. So the companies that have done really well through this pandemic, the ones that have actually leverage the support that's been available to them and that might be supported from the government with the government subsidies that are being put in place and companies like Xero have supported those companies in being able to access that so whether you know, we did a lot of work around informing our customers on how to actually access government support and even accelerated some of the product developments that we put in place to ensure that our product and our technology was helping them to access that government support but leveraging the ecosystem Kristina could also be just leveraging the community around them, leveraging their accountants, their advisors, those that are best able to help them navigate some challenging times, help them manage their cash flow, help them make the right decision. In the U.S., for example, we've come out with more of a concept around doing it together than doing it on your own, and I think that that is something that's also going to accelerate a change in the adoption of small businesses really leveraging those professional advisors around them that can help them and then. The other two things that have come out in the commission is using cloud-based tools to increase efficiency. So we have over 800 providers that plug into the Xero platform that are really those bespoke applications that help small businesses in different verticals, you know, operate their business remotely so that could be invoicing tools or reporting tools or even it's scheduling time, scheduling and attendance tools for organizations that are having to run remote workforces through the pandemic. And then finally their ability to actually, because they're in a digital environment, the beauty of that is that it creates a centralized repository of all this rich data that they can leverage to help them inform them and make decisions that are going to best serve their business needs.

KRISTINA: So you just said something that's very interesting to me because so often I hear from small business owners that they don't know what they don't know. They might understand the customer, especially if they're a small business. They probably know somebody who regularly comes into their shop what they tend to like or by Etc. But you know, most of the folks that I talked to who are in small businesses or supporting small businesses simply say, I don't even know where to start like if I want to go digital, who do I turn to how do I know that somebody's a trusted source and I have so little money to invest in this, how do I get started and make sure that my money is well spent because every dollar that I'm investing is another dollar I'm taking out of my pocket. So how do people start from your perspective in a small business environment going down this digitization process, and it makes sense for them to reach out to trusted advisors. But if they don't know who they are and they don't know what they don't know? What is the best approach that they should take on?

RACHAEL: We strongly believe, and we've done a lot of research to actually ascertain that we know that those small businesses that are connected to an advisor more likely to be in business in 5 years, and they're more likely to be ahead of where their projections are. So you touched on a really significant word that we talked about a lot at Xero, which is trust, and I think it's really fundamentally important that there is a trusting relationship between that small business and the advisor, so, you know, we have an advisor network. So we help our small businesses connect to the right advisor in their jurisdiction in their local area. We do find in some in some countries that there's less of that connection between the small business and the advisor on population, but I think what we're finding is that those small businesses that actually take that leap and reach out to the small business adviser who by the way might be accountants and bookkeepers, but that have moved more into that digital technology environment. So they're not only just helping their small businesses really understand what their books are saying and helping them make decisions, but they're also helping them get onto the right cloud technology, and that is onboarding them on a platform like Xero to manage their financial accounts, but also connecting them with all of the right applications that plug straight into Xero making sure that they're getting on-boarded correctly so that for example, all of their bank feeds are connected. So will their reconciliations are happening automatically, but I think it does come it comes, you know back to that theme of doing it yourself to doing it together and that doing it together really needs to be based on that fundamental premise of trust and you know, we do a lot of work at Xero to make sure that we're helping these advisors have the right tools and the right training to move from a pure compliance right through to trusted sources and true small business advisors. So I think the best way is to really for these small businesses to really find out who in their local community and I think this is one of the things that are going to come out the back of COVID to is that people are going to really rely on their local communities a lot more than they have in the past but really understanding who in their local community has the skills and the resources to help these small businesses move into a digital environment and also be their trusted advisor with respect to, you know, to surviving their business through this pandemic and or growing it as they try and work out ways that they can best serve their customers in lockdown situations or through various waves or as we come out of covid-19 be really important to really think about what that new landscape looks like and what the business needs to do sit up for that opportunity.

KRISTINA: So you talked a lot about having your platform and the opportunity for folks to actually integrate their perhaps accounting or the backend office aspects, which makes a lot of sense, especially kind of going cloud-first. I'm wondering, though, you know, specifically when it comes to what I call the softer side of Sears. How do small businesses really come to understand the glue between all of those pieces? For example, you know, I'm thinking about security recently. I dealt with a situation where our very small business experienced a data breach, and they weren't aware of the fact that it was an actual data breach to them. They thought they were having their email spoofed. And in fact, when they first reached out to me, they said that that's what they needed help with was email spoofing, and it became very clear within the first, you know, 20 minutes that it was actually a data breach and this poor business owner had no idea that there were 50 different laws. If you will in the 50 different states in the United States of America that had different data breach laws and so, you know, she was a lovely person, very smart in terms of her business really great at what she does but she again didn't know what she didn't know, and you know, I would like to think that she could outsource a lot and she did she outsource, Microsoft 365 to the cloud a lot of components were in the cloud, but the reality is they still had the weak link because they had on-premise computers. Somebody opened an attachment, and malware got out. They didn't have the quite right firewall up, and here we go, full-on data breach. So I'm wondering how do you sort of shore up in mature the entire ecosystem for these small businesses? Because you know, the entire ecosystem is only as strong as the weakest link, and so your experience, you know, short of bringing somebody in who is a consultant in that they can pay to do that which sometimes it's an option. But what else are you advising small businesses to do? Is there sort of a secret small business channel for people to tune into, or you know, is there a device or best practices that you have seen that you would advise?

RACHAEL: Yeah, this is, Kristina, this is where I think companies like Xero have a huge responsibility and particularly at times like this where we see a massive migration to the cloud and digital technology, so small businesses can operate remotely, so one of the things, I'll give you an example, one of the things that we put together as on our Xero Central platform. So we have a platform that is a product, and it's a product that's free to our customers, and it's called Xero Central, and it's a plethora of assets and information that supports small businesses. So there's education on their around how to use our technology, but there's other education around, there are other education topics that are available to small businesses that might be topics around security, how to make sure that your data is secure. So we with the pandemic within 24 hours when it was apparent that there was going to be significant challenges for small businesses globally, we went into action and put together a business continuity website for small businesses to really understand what they needed to do in the first instance. So it was about making sure that we could help those small businesses who, as you say, they don't have access to these resources and these tools and you know, they don't know what they don't know, so companies like Xero and other technology providers of small business really need to step up and take some responsibility in helping them around some of the fundamentals with respect to security and giving them some insight into what they need to do as a base level—also helping within with respect to introducing them to advisors as I suggested with our advisor network. We play a role in small businesses who actually want an introduction to advisors they can go on to our advisory network and have a look who's in their area, and we make sure that those advisers the right sort of advisors for small businesses and they're leveraging their business off the back of the Xero technology as well.

KRISTINA: I have a colleague who's a strong proponent of communities of practice, and it sounds like what you're really describing is a wonderful community of practice where people can come. They can certainly access information, knowledge, and insights, but they can also give back and share experiences, and there's nothing as powerful as that peer-to-peer connection as you said and being able to share The Good, The Bad, and The Innovative as well. So thinking a little bit towards just some of the trends that you see and I know that you've commissioned quite a few studies recently. Obviously, this is a time where small businesses can pivot, I mean a lot of pressures, they can pivot. I've seen some things at my local level that have been quite impressive but are there sort of certain verticals where you see more innovation happen than others? Have you seen wholeheartedly small businesses transform themselves into something completely different, or is it really more about these small pivots along the way that will kind of help you not necessarily thrive, but just kind of survive this period?

RACHAEL: We've seen everything, Kristina. So we have to spend a lot of time to showcase our small businesses as well. So in our marketing efforts, it's about our customers and sharing their success. So, I mean, we had a customer that was staging productions and, of course, with the entertainment industry really going right into hibernation and losing all of their business from doing whether it's conferences or plays or any it staging entertainments this business actually went into making standup desks. So they used a lot of their resources in terms of creating staging sets to produce standup desks that took, you know, three pieces to put together and then create a standup desk. So that was incredible. We've also seen in hospitality that has had to shut their doors move to packaged goods that would serve for home cooks catering meals so and with home delivery, we've seen businesses being born out of covid like a lot of people like to eat out at what we call five-star restaurants or 1 or 2 Chef Hats restaurants. It's, and there's a business that's been borne out of making sure that like, they've created a digital front door, if you like, for customers in certain markets to actually access all of these beautiful restaurants and have home served meals delivered to them. So this is a company that's really just created the marketplace. They're not actually serving any of the products themselves. So it's just it's incredible to watch what comes out of people when they're forced to actually think differently for survival. And one of the things that came out of the Forrester study that I found quite interesting is the fact that the customer, the small businesses that have served their customers that really trying to create that empathetic connection with the customer, that is respecting they need, that is ensuring that there are significant health and safety protocols that are put in place there the small businesses that people want to support. So this connection back to the local community has been a piece of gold that I think is coming out of the pandemic, and I personally hope that that stays because I think that once we come back to the things that matter the most, which is supporting those that are around us and ensuring that we're coming back to that human connection. That's all based on what you said before around trust is where we're going to see some of the silver lining and the magic that comes out of the pandemic.

KRISTINA: And so you're speaking about the local community connection. I think that's so important, but with a digital front door, there's also this opportunity, I think, for small businesses to really have a completely new audience globally. Do you think there's any particular business that you've seen a small business or a vertical that perhaps we'll look five years from now back on and say, oh my gosh, you know, maybe they were small business before the pandemic, but now they're global, and they're no longer a small business?

RACHAEL: Absolutely. And that's the flip side of the coin I suppose to supporting small businesses locally in certain segments like hospitality, but the flip side and what I have seen is an incredible increase acceleration of e-commerce. So small businesses that have goods and that that can be shipped globally those that have actually moved to a digital environment for the front office and the back office a really well set up to be able to serve customers on a global level, and you've even seen you know, then I don't know about you, but I've been at home now in lockdown in Melbourne for and 112, 113 days and the couriers have knocked on my door. I've never had so many couriers and Australia Post deliveries, and that just goes to show that there is absolutely a need and I think that consumer behavior shift of actually going to a shop to ordering online is here to stay, so the businesses that are set up to do that it going to be the ones that there can really capitalize and take advantage of the change in consumer behaviors. In the way that they go about procuring their products. They're going to be the ones that are going to be able to access a far greater audience on a global scale.

KRISTINA: And how do you overcome the mentality in some instances of the small businesses? So I'll give you an example. I have these crazy slippers that my mother's been buying me forever, like for two decades now, they're made by a place called Kopitarna, which is a Slovenian company, but they sell them in Croatia as well. So when I go home and I visit my mom, she always gets me these crazy black slippers that we've had in the family, same model, nothing changes, more support perhaps but, you know, it's almost like a family tradition. And so here we are in this pandemic; much like you, I've been quarantined. I'm not going home anytime soon. Nobody's coming to me. I want a new pair of slippers. My old ones are worn out, and when I reached out and said, hey, you know, can I please order a pair? It turns out online e-commerce doesn't ship to the United States, and the first response that I got was it was too expensive for us to ship. And I thought to myself, that's interesting because you didn't ask me if I'm willing to pay extra money for the shipment, right? I mean, maybe this is so emotional to me that I'm more than happy to pay 30 dollars to actually get the shipment here from Slovenia, but that wasn't even an option. I was just shot down right away. And so I'm wondering, you know, in some instances, delivery might be a challenge in terms of shipping costs. But if you consider the global audience, maybe not, maybe there are enough people like me who are willing to pay that extra delivery fee. So, how much of this really able to grow is barrier such as shipping costs and how much of it is still barriers from a mental perspective to the small business and helping them understand that they need to pivot, they need to change their mentality?

RACHAEL: Absolutely. It's, you know, I would say 80 to a hundred percent of it is around mindset. So if you have a fixed mindset and you think that the way that we've always done things is the only way to do things in the future. Those are the businesses that are going to be, at best, they're going to continue to survive but at a rapidly declining rate. At worst, they're going to be obsolete. They're really going to be redundant in the new world because these consumer behaviors are here to change. So, Kristina, your example is a really good example of some of the statistics that came out of the Forrester report, the Forrester in the surveys that they did across five countries, three thousand small businesses ascertained that 23% of thriving businesses had increased the range of products and services that they're offered and that increase in the range of products and services might be for example that they offer shipping at a cost. For example, you know, it could have the same products, but the service is at is added on to ship internationally. So I think that a lot of it is around just the mindset of the small business, and of course, they'll be some small businesses that just they're not in there not in that headspace to actually change the been doing what they've been doing for a long time. Hopefully, when the pandemic and a vaccine comes, they'll go back to serving customers in their local community. But the ones that are going to thrive are the ones that are going to look at the opportunities that are in front of them. They're going to look at those small tweaks that they need to make as a business, and they're going to make those changes and be able to access such a far greater audience and that's why I think it's really important that they do seek that professional support and advice. So they go from the do-it-yourself to do it together because we're you know, if they're making those informed decisions with the likes of trusted advisors that have been there and done that before then they're going to be more successful in being able to flourish as a business.

KRISTINA: That's really helpful. I think that that sounds spot-on to me as a small business experience person. Rachael, I'm curious looking at 2021; just leapfrog into the new year because hopefully, things will be so much better on the other side. If you can gaze into your crystal ball and see sort of what you think are the three biggest opportunities for any small business out there. What would you say to folks? Like what should they really be thinking about as they gear up and get themselves ready for 2021?

RACHAEL: Okay, so that is a big question. And I think there's a lot in that, but I think that the first thing is for them to leverage the support of the advisers in the ecosystem that can help them set up for the new economy, because I think one thing for sure is is we're not going back, if we even look at the way that we work. And most of us have worked from home or year. I'm sure officers will open again, but the number of people that will continue to work at home for part of the week will accelerate, you know, beyond what we anticipated they would in 2021. So we're not going back to the way they were the way that we operated before, and that also comes to the consumer, behavior consumers will not procure the way that they did, and you know, there will be changes to the way that we live, and with that, it means that that small businesses need to really think about what some of those changes would be and their best place to do that by making sure that they've got the right support around them to help them make the decisions that they need to do to set up their business for success. The second would be to ensure that they're moving to a cloud-based environment. So we do not see a slow migration to the cloud, and in fact, North America was one of the regions that we saw probably the slowest cloud take up out of some of the more advanced nations in the world that have moved to cloud a lot faster. And I think we're going to see an acceleration of adoption to cloud-based. So that companies can operate their business from anywhere. But so that they've all got also got real-time access to information between the small business and their advisor. So they're looking at the same information at the same time, which means that they're able to make decisions really fast. So that's, you know, definitely one thing that I would see is really important in setting up for 2021, and with those two things in place, I think the third and final thing is really important is understanding your consumer, understanding who they are, understanding what it is that that thereafter and speaking to them in a personalized manner—so being able to communicate with personalization using In machine learning and A.I. which all comes off having you know, that central repository of data is really important and I think that setting that up for a small business is critical for them to be able to capitalize on the opportunity that lies in front of them.

KRISTINA: That's a wonderful note to end on for today. I think this is a lot of great insights, Rachael and I think we probably just scratched the surface but quickly wanted to thank you for your brilliant insights. And before we sign off, Xero, that's Xero.com is where folks should head over and get more insights into how small businesses can tap your advisor network and all good things to not just be able to survive but also thrive. Anything else in closing that you would like to give us as resources or places to head out and access information?

RACHAEL: You can head to our website. As you said, it's Xero.com, and you can access the Forrester report that I'm talking about. We also have a program called the Xero Small Business Insights program, where we access the data that is actually on our platform to inform governments of certain regulatory changes that they need to put into place based on seeing what the trends are within different verticals in different industries. We haven't yet launched that program in North America, but the data is accurate for Australia, New Zealand, and the U.K., and we'll be looking at doing that in North America shortly. The other thing that I will say is we've launched a new product in the market that is the starter of small businesses that are looking at getting onto a digital platform without going all out with the full plethora of resources that Xero has to offer and that's something that that small businesses in North America can access, its called the Early plan and that is found on our website as well.

KRISTINA: Wonderful. Well, thanks again, Rachael. It was a lovely conversation. I appreciate you sharing all of your wisdom and insights, and come back and visit us and tell us some more soon.

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