Instead of struggling to use various direct channels to reach out to two million small business owners in Australia, cloud accounting software Xero, focused on one channel that worked.
This is a fact that Blake Hutchison, Head of Strategic Partnerships, New Channels, shared at his SydStart workshop called “Sales Success: The Tactics to Consider and What I’ve Seen Work”. The channel was responsible for growing the company to over 200,000 small business customers in Australia.
“We have a partner network composed of 14,000 accountants and bookkeepers. We have leveraged into this trusted advisor network that taps into small businesses on our behalf,” Blake said.
When he joined Xero, he didn’t know about the channel and it was a huge learning curve for him. “I learned that we didn’t communicate directly with our small business customers. It’s quite incredible to think about the growth of Xero. 70 percent of all our subscribers originated through this partner channel.”
Making One Channel Work
Talking about his past experiences when he launched his own startup, Blake said that they had spent lots of time and money on various channels. They invested in keyword advertising, direct sales avenues, and reached out to merchants to list on their website.
“We were distracted by these disparate sales channels,” he said. “As investors and successful founders often say, focus is absolutely critical. The success of your product is about your ability to get your product to market, make it stand out, and convince others to sell it for you,” he added. It is worth noting for Blake that when one walks into Xero, they will find that 85 percent of the staff is committed to the partner network channel.
Blake talked about Xero in a SaaS (Software as a Service) context, but for him this point is relevant to all founders. “It’s ultimately about convincing your users to convince others to use it as well.”
Scaling is Expensive and Difficult
According to Blake, it is expensive and difficult to scale. Less than seven percent of all SaaS companies globally achieved scale beyond 10,000 customers. Most have an easy time getting to 100 customers through direct channels. However, he also said that one channel that got you 200 customers is perhaps not the way to get you to 10,000.
Take for instance the cost of acquisition in a direct context. In a branded keyword contest, acquiring customers is cheap. You’re going to spend big money on non-branded keywords. In Xero’s case, they had to go against the incumbents so they were using accounting software keyword terms, which were expensive. The cost averages $100 to $180 to acquire one customer in their segment.
“Say for example you are a business using direct marketing and wanting to reach 10,000 customers. At $100 to get 10,000 customers, you need to have a million dollars cash at bank,” Blake said. It is important to know how much your acquisition cost is per customer in order to gauge if a certain channel is worth investing on.
Improving What’s Working
Xero is not looking for a new channel. Since they already have a working channel, they are focusing on growing that. They started looking at affiliate marketing and strategic partnership. Xero invested heavily in their iOS experience so people would gravitate to their product. They have also partnered with Insightly, Shopify, Bigcommerce, and Mind and Body.
“We are using these companies to take us into their verticals. Xero is a horizontal company. We don’t know who to go after specifically. What we can do is attach ourselves to these vertically-focused companies and have them take us on the journey with them,” Blake said.
Most importantly, Xero created a product called Xero U or Xero University to drive greater efficiency to their partner channels. It’s updated weekly with rich content, ranging from financial literacy to marketing. Small businesses take advantage of the training and events tailored for them, while accountants, bookkeepers, and financial professionals could take various courses.
Watch Blake’s workshop with a Digital Pass.