a xero-sum game?

Xero is the accounting software darling of Australia and New Zealand. We use it here at Turning Leaf, and if you’re in small business down under, you probably do too.

Xero is from NZ. (Maybe it will be the next Crowded House or Buzzy Bee? Vegemite and RM Williams are ours, but you can have Xero and Russell Crowe.)

Anyway. Xero’s penetration recently hit 70% in Australia and growth started to slow. What do you do to keep growing when you’re running out of people to sign up? (That is, apart from sending subscription rates sky high, which they’ve already done).

Australia and New Zealand markets are accounted for

From its beginnings in Wellington in 2006, Xero did to desktop accounting what Canva did to design. Small businesses and their accountants moved off MYOB and into the cloud, turning the ANZ Xero business into a money-printing machine.

But customer growth in both New Zealand and Australia is falling away as they run out of easy opportunities while cheaper niche players like Hnry (for tradies) nibble at the edges.

Today, you be the CEO! You have to decide where your next decade of growth will come from.

You’re tossing up the UK and the USA.

Xero is on fire in the UK. The culture and customer needs are close to home, and last year they had the strongest growth of any region. The product needs little adaptation, and the main rival is legacy player Sage, which is hopeless like MYOB.

The US is by far the largest small-business market on the planet (and where small business is understood by the people and governments as the primary engine of growth and productivity). Win in the states, and you will become the next antipodean unicorn.

Unfortunately, your first decade of attempts to break into the US market resulted in insignificant share gains.

In the States, Xero is still stuck on a 1% share and QuickBooks remains the clear leader and won’t go down without a gunfight.

The Strategic Challenge:

Should Xero double down where it’s already winning (UK), or have another crack at the market that has resisted it for a decade (US)?

the strategy standoff

Strategy A: Bank on Britania

Focus on the UK, where momentum is strong, market fit is already proven and the competition is weak. You get very low risk, guaranteed returns, and the ANZ cash cow can fund it all.

But even a big win in the UK would leave you a regional champion, rather than a global SaaS name like Canva or Atlassian. And after a decade without traction, the window to a real challenge in the US is closing.

Strategy B: Buck the Accounting Trend

You could bet the business on the US and spend all the ANZ cash cow money on scaling up Xero distribution into American small businesses. That would finally take on QuickBooks and even a modest share of the US market would make you a global player.

On the other hand, the risks are eye-watering after a decade of failure. With entrenched accounting incumbents, your real chances of winning are objectively slim. This move could vaporise your ANZ profits and miss the opportunity for a near-certain UK win.

answer

so, which did they choose?

Cast your vote to find out!

Focus on the UK?

Bet it all on the US market?

better luck next time, strategy b was chosen!

good job, strategy b was chosen!

How people voted Strategy Standoff (2).png

But how did this work out for Xero...

outcome: facilitator commentary

Matt Braithwaite-Young

Managing Partner

t +61 2 9002 3100

contact matt

Goodwill Hunting

Xero thought, fuck it, and went hard for the USA.

They say their new strategy is to win three jobs (accounting, payroll, payments) across three markets (Australia, UK, US).

So, technically they still think they are having a go at the UK. But follow the money and you can see the real strategy is to bet the farm on the US.

In 2025, Xero bought US payments platform Melio for US$3 billion. Melio was losing money (and still is), but it offered Xero a fast distribution path because in the US firms expect accounting software to have an invoicing and payment feature.

They raised nearly A$2 billion from shareholders to do the deal, and the share price hit an all-time high of A$196 the month it was announced.

But now the ANZ market hates it.

Written down, Down Under

A year after the deal, Xero was trading at A$70 (down over 50%) because investors didn’t like paying 13x revenue for Melio when it was still losing money.

And as you would have seen, the whole software sector is in a slump, because Chat or Claude may end up doing all these services. To highlight the risk, Xero announced a partnership with Anthropic, who then announced a plan for small business tools aimed at QuickBooks customers. With friends like Anthropic…

Above: Xero ASX share price collapse after announcing the US attack

Is it time for an audit?

The Xero CEO and her team all relocated to her hometown in the US which means presumably she’s happy. And she’s on a US calibrated salaries so she’s even happier.

Having said that, if you read the papers this week, word on the street is: the big Aussie super fund managers are unhappy with the US-sized pay the CEO now wants. Her pay is small for Silicon Valley but massive for an ASX firm.

To be fair, so far results are tracking well.

Group revenue grew 31 per cent, US revenue tripled after Melio added 110,000 new American customers last year (but Melio is still losing money).

Morningstar, the analysts who had a SELL on Xero over Melio, has now turned positive. At the current share price, they reckon the ANZ business justifies the entire market value. They now say at this price you’re buying a good ANZ business and getting a potential American upside for free.

Accounts receivable: the results still owing

Backing Britannia would have been safer, but the board obviously decided becoming a regional SaaS wasn’t a big enough win.

If Melio stops losing money and group revenue doubles, their direction will be vindicated.

If the numbers don’t come in, there will be trouble.

Very few Aussie firms successfully transfer their model the US, so whichever way it goes, this will be one of the great Australasian strategy stories.

Is your cash cow due for a reconciliation?

Lots of the businesses we work with have a cash cow division or product range, and it often means hard decisions: do you keep milking it, or sell it and focus on the next thing.

The worst outcome might be letting your cash cow just sit there, without your leaders making an explicit choice about its role in your portfolio.

Your Turning Leaf facilitator will help your leadership team put the options and trade-offs on the table, so you can commit to a direction together.

When you’re ready to take your strategy to the next level, call me on 0410 598 538, or visit www.turning-leaf.com.au.

P.S. Thanks for being one of the actual readers. These take forever to write. I use a bit of AI for research, but I hope you can tell it's me writing this, not a bloody robot.

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