Xero CEO Unafraid of the ‘SaaSpocalypse’

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1:32Bloomberg Audio Studios, podcasts, radio, news. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Our next guest in the software space, Sukhinder Sincassidy, CEO of the cloud-based accounting software Maker Zero Trades in Australia. Sukhinder, welcome back. It's nice to have you back on here. We want to start with everything that's been going on over the past few days. The concern that was really sparked by Anthropics Claude coming out with this tool that allowed legal analysis that for a long time was really the remit of specialized companies. And it got this conversation started.

2:13Hey, some of these SaaS companies are really at risk, some say, because of what AI and AI tech can do. Is your business at risk? We think for us, AI is a net TAM expander, including the tools offered by many of the powerful LLMs. Now, the question is why? I think when you think about companies like Xero, we are the system of record. We are the collector of data for the SMBs who work with us. So it is not just about the software. It is about the data you provide. It is about your domain expertise in your vertical. It is about your ability to take the power of these tools and translate them for your customer and your customer needs that.

2:55And of course, it's about the trust privacy kind of layer that I would say the 99 percent of SMBs in the world who are not builders of technology will look to companies like Xero to make accessible to them. So we see an opportunity for TAM expansion in our markets. And when you say TAM expansion, you're talking about total addressable market. And when you talk about SMBs, you're talking about those small and medium sized businesses, which you guys cater to. Please go ahead. Yes. Sorry. Sorry for the acronyms. And to your point, I think we see all of these powerful tools, including from the horizontal players, as technology we need to take advantage of, as well as building proprietary technology in order to make it understandable for the 99 percent of SMBs who don't go to work in the morning thinking, I am going to build tech software.

3:42They're thinking about their business. To be fair, I mean, everybody that we talk about with this impact that we've seen on some of these SaaS companies, these software as a service companies, and we've talked with our own Mandeep Singh of our Bloomberg Intelligence team, who says software is not dead. Like, you know, let's have some perspective. At the same time, in terms of the AI spend, build, and impact in particular, we're early on in this game and this change and this disruption. So is it fair to say that there is going to be some disruption and that maybe some of what you do may be replaced by AI or some of these AI chat programs, if you will?

4:23You know, I think I would I would say it differently. I think that AI technology is something we at Xero also take advantage of. So we're building our vertical domain LLMs on top of the powerful technologies coming out today. Because what our customer needs, again, I'm going to come back to, we're a financial operations backbone for small businesses who 99 % of the day don't wake up thinking about technology or, quite frankly, financial operations. They want to spend the majority of their time thinking about their business. And for them, we need to be a force multiplier. So think of us as a translation layer for that small business, taking advantage of both proprietary data and the power of these horizontal technologies.

5:05So zero stock slid close to 16 percent in Wednesday's session in Australia, bounced back a little bit today, up 1.6 percent. Yesterday's sell off as an over concern. Was that overdone? You know, I think that the market right now is not distinguishing between the many types of software companies and the position they play with their customers. So I do think that the broad sell-off does not really distinguish between the value propositions of different software companies. So for us, I mean, we did an investor briefing on Monday about how excited we are about using AI technology and being the layer that brings that to our customers with a domain-specific use case that can be multiplied, we would think, with the use of this technology.

5:52You know, it's interesting. And there was, I think it is a financial review where you gave an interview and they did a story on you guys just this week. And in a presentation to investors, you were cited as saying that you used Anthropics clod coding tools to try to clone Xero. Tell us about that. Tell us about investor reaction. And what are the questions you are getting from investors? Sure. So first of all, I mean, I use all the tools. I think if you're a CEO in today's age, you know, use the tools. Understand the power and the limitations of the tools today and how they're going to get more powerful.

6:25So when I used it, it was very easy to build a simple reconciliation. But when I tried to have multiple agents, they prompted me to go build much of the technology Xero has. A good example would be, hey, it's great that you gave me your bank statement, but I need you to be able to plug in multiple bank feeds. Well, of course, that's the data layer I'm talking about at Xero. So I like using these tools because I think my job, our job, is to understand the power of this technology and harness it, not be afraid of it. Now, in terms of other questions investors are asking us, look, we have had and continue to enjoy, I think, strong long-term shareholders in Xero.

7:03I think when we gave the investor briefing on Monday, I think they were excited to hear us talk about our differentiators and excited to hear us, quite frankly, talk about AI adoption on our own platform. We use multiple LLMs behind Xero's own AI technology. We call it JAX. And we shared with them the early adoption figures on Xero. 300 ,000 of our customers are already using new AI, gen AI features we launched within the last year. And of course, over the last 20 years, we've used traditional AI and have well over 2 million customers using traditional AI at zero. Again, all harnessing the powerful technologies being built.

7:39And so I think this is, again, very critical in understanding our position in the market. Sukinder, just in the last 30 seconds that we have with you, one of the reasons we like speaking with you is because you have these small and medium-sized businesses all over as clients. What can you tell us just about the current health of their businesses and different areas of strength geographically in this economy? Yeah, you know, look, I would say small businesses are sharing are showing durability in this economy. I'd say in the southern hemisphere, where zero was originated, Australia, New Zealand, you know, the last over the last year, our own data shows some final real time return to growth.

8:16In the US, you know, you have a remarkably durable SMB, as you know, despite tariffs, despite uncertainty, the optimism index by the NFIB remains at close to all-time highs. So we see durability in the UK where we operate, small businesses continue to need and get a lot of support from the government on distribution. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But in life, even the best strategies can't prevent every bad day. a fire, a loss, a disruption that demands immediate attention. When that happens, what matters isn't just what you planned, it's who shows up.

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