1. How I Discovered Xero
I first became aware of Xero, the cloud-based accounting platform from New Zealand, in 2014—through a conversation with my dad, who had previously held shares in the company. That casual conversation turned into a deep dive.
Around the same time, I began hearing stories from the accounting software space, including inside knowledge about MYOB—a legacy player where Xero’s founder previously worked. Frustrated by MYOB’s reluctance to move to a web-native solution, he left to build what would become Xero: a modern, cloud-first challenger built for the emerging needs of small to medium enterprises (SMEs). It was a classic disruptor’s origin story, and it caught my attention.
2. Early Research: Scuttlebutt and Product Immersion
In the spirit of Peter Lynch, I used scuttlebutt and product immersion to evaluate Xero.
I spoke with:
- Accountants and bookkeepers who loved the platform
- Industry insiders who were critical
- Customers comparing Xero to alternatives like MYOB and QuickBooks
I noticed something powerful: Xero was attracting both admiration and controversy. That’s often a telltale sign of an emerging disruptor. As David Gardner puts it, when a company is generating headlines—especially negative ones—it’s likely stirring incumbents and shifting the status quo.
I didn’t just study their numbers. I used the product. I used competitor products. I mapped the user experience, product stickiness, and network effects. What I saw was clear: Xero had built something intuitively useful, future-ready, and deeply valued by the market it served.
3. My Investment Approach
I made my first investment in Xero in 2016—a small initial position of around $500. From there, I applied my “learn with skin in the game” approach. I continued to monitor performance, engage with product updates, and track adoption among SMEs and industry professionals.
I noticed that regulatory tailwinds—such as mandatory payroll, superannuation, and reporting requirements—were playing into Xero’s hands. As compliance obligations increased, small businesses were desperate for intuitive, scalable solutions. Xero was not only winning customers—it was earning trust.
Over time, I consistently dollar-cost averaged into Xero, building the position across 9 years. Today, the stock represents 7% of my portfolio, built from an initial 4% capital allocation.
4. The Investment Result
This has been one of my most successful positions:
- 400%+ return across the position
- 16.5% compound annual growth rate (CAGR)
- Significantly outperforming the broader market by 2x+
But more importantly, it has reinforced one of my key beliefs: that deep product understanding plus aligned macro conditions yields long-term asymmetric returns.
5. Leadership Transition: From Founder to Silicon Valley Veteran
In 2023, Xero announced the transition from founder CEO Steve Vamos to Sukhinder Singh Cassidy. While founder transitions can be risky, I viewed this as a strong move.
Cassidy brought:
- Silicon Valley pedigree (Yodlee, Upstart, TripAdvisor, Google APAC)
- Deep SaaS experience and global scaling capability
- Board governance maturity and investor credibility
Under her leadership, Xero has grown its earnings meaningfully, expanded into more international markets, and sharpened its commercial execution. This leadership evolution gives me confidence in Xero’s ability to scale its platform, its distribution, and its profit engine.
6. Business Model & Moat
Xero’s moat lies in:
- Product stickiness and switching cost among accountants and SMEs
- A growing ecosystem of integrations and developers
- A platform that becomes more useful the more it is used (network effect)
They are embedded in the daily workflows of businesses and the professionals who serve them—creating a powerful retention loop.
Their business model is a high-margin, recurring revenue SaaS engine—with increasing operating leverage and international optionality.
7. Total Addressable Market (TAM) & Positioning
Xero’s current opportunity is expanding across regions and verticals.
| Market Segment | TAM Estimate | Xero Positioning |
|---|---|---|
| Australia & New Zealand | ~$3B | Dominant share (~50% in AU) |
| United Kingdom | ~$5B | Rapid growth, top challenger |
| North America (Canada/US) | ~$15B | Early penetration |
| Asia & South Africa | ~$2–3B | Expanding footprint |
| Partner Ecosystem/Adjacents | ~$5B+ | Integrations, payroll, apps, insights |
Xero is currently active in 180+ countries, and I believe their global TAM exceeds $25–30 billion, with meaningful runway in underpenetrated markets.
8. What I’m Watching
I continue to monitor:
- ARR growth and customer retention
- SaaS metrics like net revenue retention and margins
- Progress in North America and Asia
- Evolution of their partner ecosystem (accountants/bookkeepers)
- Expansion of services into payments, capital, insights
9. What Would Break My Thesis
My confidence is high, but I remain watchful for:
- A misstep in international expansion (especially the U.S.)
- Pricing misalignment that leads to churn
- Erosion of product quality or user experience
- A disruptive new player that redefines the category
At present, Xero’s competitive position is durable. And the regulatory environment, rising digital literacy, and small business growth tailwinds continue to strengthen its moat.
Final Reflection
Xero has grown from a niche cloud accounting product into one of the most trusted platforms for small business finance management across the globe.
For me, it represents the perfect expression of:
- Product-led growth,
- Founder-led innovation,
- And disciplined capital allocation.
If my children ever ask why I invested early in a New Zealand accounting software company, I’ll say: “Because small businesses run the world—and Xero runs the software they trust.”
