Balancing growth and profitability in a high interest rate environment can only be achieved through trust and transparency, according to the Xero chair-CEO team. 

    In its FY23 investor update, global Software-as-a- Service (SaaS) behemoth Xero flagged among its key priorities: a macro-resilient business generating strong and efficient growth through improved operating leverage. Chair David Thodey AO FAICD and CEO Sukhinder Singh Cassidy discuss how they have built the foundations of a robust relationship while delivering on the business’ latest phase in the first year of Singh Cassidy’s tenure — profitable growth.

    David Thodey AO FAICD

    The chair’s POV

    What’s important with any chair-board-CEO relationship is that it’s got to be professional, respectful, and you need to build a strong foundation of trust. That probably has characterised my relationship with Sukhinder from day one. We both work hard at trying to be honest and open, and to ensure there’s a good mutual understanding. Also the old adage of avoiding surprises — making sure that there’s role clarity, and that expectations and boundaries are carefully managed.

    [My relationship with Singh Cassidy] is very similar to the relationship I had with [former CEO] Steve Vamos GAICD. We have regular fortnightly meetings. We try to structure them very clearly so we’re both aware of what each other wants to speak about in that hour.

    In terms of the style, we’re all individuals and we have a different style. Sukhinder and I tend to be very disciplined in trying to make sure there’s an agenda for each meeting because we find it more productive. With Steve, it was more a conversation, but equally as effective.

    I’m personally [excited] and the board is incredibly excited to have Sukhinder leading Xero. She’s shown herself to be a purpose-driven leader, very human-centric in her leadership style. Her commitment to customers and how we grow this business is palpable. Overall, it has been a good first eight months as we build that chair-CEO relationship.

    Consistency around areas like values-based leadership is so important in driving the right behaviours into the organisation. It helps people take accountability and, in the end, drive to better customer outcomes, which is right at the heart of who we are at Xero. I know Sukhinder shares that. We do naturally just have that immediate rapport and drive.

    A shared challenge

    In the tech sector, there’s enormous change. By its very definition, technology is an enabler of change and transformation. As a leader in a technology company, you need to be willing to challenge yourself and to reset direction if you need to. Therefore, you’ve got to be able to set long-term objectives, but have a degree of flexibility and speed of execution that allows you to get where you need to.

    As Sukhinder came into the organisation, we had agreed with her, and with the board, that there was a need for a restructuring and setting the business on a different financial set of parameters, which was to drive profitable growth. We’ve been taking all our free cash and reinvesting in the business, and we had to make several decisions because we saw this higher interest rate environment.

    After a little bit of that tech correction, we saw our investors and ourselves wanting more efficiency to really streamline our operations to deliver product nimbly and quickly to customers, and also to achieve what we thought was a global SaaS-based company.

    We’ve been working at that, which required us to do some restructuring and look at our go-to- market structures. Sukhinder came into that straight away, and that’s been a very dynamic and collaborative set of initiatives that we’ve been working through and we’ve pretty much executed. But there always will be more to do.

    Sukhinder has approached that challenge, both with the board and myself, but also with the executive team, with all the staff at Xero, because we hadn’t been through a time like this. It was a very iterative process, where we were able to probe and answer and seek clarification. Because you can very easily go off script, and then you don’t really achieve everything you wanted to.

    Your role as a director and as a CEO is how to pick those times correctly and then respond quickly, while still remaining true to what you believe in and your purpose. I’ve got to say that that’s been a really fulfilling experience. As difficult as it was — it wasn’t easy. Also, it’s shown just how important it is that there be a really strong working relationship as we go through change like that, which we’re still going through.

    Global mindset & culture

    Being purpose-led with a strong brand and celebrating diversity and inclusive culture is important to us. We try to enable our people to live that and not to be just a whole lot of words on a poster in the office. That’s where I’m pleased to say the leadership team — but also, how I behave, how the board behaves, the decisions we make — all need to be consistent with that. It’s about integrity, but also getting strong alignment. If you get those things wrong, you can undermine all the great things around the culture or aspirations you have. 

    On the board itself, we now have three directors based in the US, one in Europe, one in Australia (me) and two in New Zealand. That is radically different from what it was maybe four years ago. We’ve also worked on gender and ethnic diversity because we realise the markets we serve need those different views. The leadership team within Xero is now far more global in where people are based and their experience.

    We still love Australia and NZ, but as we become a truly global company by, for example, trying to address Scandinavian markets — we bought a company [based in] Copenhagen called Planday — in building our presence in over 180 countries, we need to show we’re a global company. When you’re dealing with small and medium businesses, there is a uniqueness in every country in the world about that small business community. You need to be local, while still building universal platform capability.

    It’s exciting and more Australian companies need to lean into that, because there’s great capability in Australia and NZ and we need to keep taking that uniqueness and business acumen into global markets.

    Sukhinder Singh Cassidy

    The CEO’s POV

    First, it’s a relationship of mutual respect and trust, with the caveat that I look at David as a mentor. I’m flattered if he respects and trusts me, but there is a pretty big difference in terms of David’s calibre and level of experience overall.

    He is one of the preeminent and truly globally experienced CEOs to come out of Australia. He is so well-regarded and well-versed on running an ANZ company, but one that has its global ambition and opportunity set.

    I did an “Ask Me Anything” [session] with Xero employees, and was asked how I find mentors and coaches. I said, “Well, I believe that who you choose to work with — and work for — are some of the most important career choices you’ll make.” I’ve been lucky enough to work for people who were tremendous. I think they thought of me as a thought partner and I thought of them the same way, but I also found something in each of them that I could learn from.

    I consider many of the people I’ve worked for to be mentors and I put David in that category. That’s the important nuance. Yes, we have a chair- CEO relationship, but you always hope your chair is not only someone who you trust and have respect for, but can learn from.


    There were three separate parts to the [succession] process and all are important. One is establishing trust and openness before you take the job. That’s a key consideration set for me as I’m interviewing tobeaCEO.IsthisaboardIcanhaveanopen dialogue with on the opportunities and challenges?

    Number two was the formal handoff between Steve Vamos, me and the board, which I’d say we all participated in. Number three was my first 90 days on the job. My learning, my action plan and then what I hope to accomplish.

    The Xero board has been very cognisant that any new CEO will want to evaluate and drive a vision with the collaboration of the board, but not be a board that just dictates to you, one-way, what the strategic objectives are.

    Profitable growth

    Probably the [challenge] that’s most notable — and public, so I can talk about it — is really this balancing [act] of joining Xero at a point in time when the macro-environment was changing from an “all- tech, all-growth” environment of the past 10 years to higher interest rate, macro uncertainty, technology companies under a lot of pressure with declining public valuations and pressure on private valuations to migrate to a balance of growth and profitability.

    Clearly, the board is seeing that movie playing out outside the company. I’m arriving at Xero and also seeing that, and we want to understand how it is that we want to drive the company forward.

    In our FY23 end-of-year results, my first set of annual results, we talked about moving to a balance of growth and profitability as a company, which is a different chapter for Xero. First of all, navigating that with the board was about being in dialogue with them — again, before I started. In my interviews, we were talking about the environment and what it might require.

    I came in and worked with the board and Steve to do learnings and also the benchmarking of our companies against other fast performers. Then I did a read-back and discussion with the board. Ultimately, we announced to the market that we were moving to a world where balancing growth and profitability will be our dual ambitions going forward. I started navigating that with our stakeholders as a new CEO and then started to talk about things like the “Rule of 40” [the sum of annual revenue growth percentage and annual free cash flow margin percentage (free cash flow as a percentage of revenue)] — which is something we hadn’t really introduced to the market, or even to the company — as a useful performance evaluation measure in how an organisation is balancing growth and profitability, versus growth alone. 

    Operational leverage

    I want to go back to some of the themes from our earnings results that are important. I chatted about the fact that the business has a dual opportunity. We talked about growing our TAM [total addressable market], but deepening customer engagement is pretty important to Xero. In that market call, I talked about one of the reasons I’m excited is because we have a lot of new leverage for growth within our business that we need to learn to utilise. Now, those might be pricing and packaging. Those might be subscriber mix [or] adjacent services. We’re very early on in learning to operate those levers.

    I’m excited about making Xero global, taking deeper advantage of both volume, but also customer engagement, and we already play on a lot of surfaces. For me, it’s about being smarter about the leverage for growth that we start to build into the business. That’s probably the number-one thing I’m focused on. 

    Silicon Valley advice for sound AI practices

    Sukhinder Singh Cassidy was previously CEO of StubHub, and APAC and Latin American operations president at Google. She shares her advice for directors embarking on embedding the productive and transparent governance of AI within their organisations.

    • You definitely want to look at where [AI] can help assist in driving the productivity of core jobs to be done on your platform. While it’s very exciting to put pressure on your teams for that sexy new stuff you might read about generative AI in The Wall Street Journal, first and foremost, ask them the most substantive question: where can AI create ease for our customers? What are we already doing? Because the answer might be a lot, or it might be its first application is for customer value, which is important. Don’t diminish the opportunity to look at core AI, and most substantively, where it can help your customers do jobs faster. That’s where the yield is.

    • You want to be experimenting and learning. Find environments where you can do so in a low-risk environment. Maybe you have really good, structured data in your customer service portal. That’s a perfect first place to start using a chatbot. It’s fundamentally different from using a chatbot in a place where the data you’re using to train the model is limited. Accuracy is of the utmost importance. Find environments where you can use AI in a low-risk way and learn. 

    This article first appeared under the headline 'Xero Hour’ in the November 2023 issue of Company Director magazine.  

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