Males only?

Like Vaughan Rowsell, I get asked to facilitate or be on panels and speak at events a fair bit. Actually not quite like Vaughan — he’s incredibly popular, and for good reason.

Vaughan’s publicly announced that he will not accept being on panels with no women. Between us it’s actually a policy that he has privately had for a while.

So have I, although not as strictly as I would have liked.

As a facilitator I, if required, I’ve actively managed panel membership to ensure we have a diverse set of views, thinking about topic, gender and cultural background. Several times I’ve taken the liberty of finding one or two more people to add the the existing panel, with conference organisers always happy to oblige. Sometimes this has even happened on the day, and once, when the sole women panelist was called away 15 minutes before the panel, we found someone just seconds before the event. Step up Alyona Medelyan, who easily proved she was the smartest person in the room (or at least on the panel) at ITx.

It’s harder when you are a just a panelist to influence the membership of the whole panel, but most organisers are happy once you suggest some other people to add. In the web, IT and early stage company sectors this is particularly easy, and Webstock, NetHui, Gather, FooCamp, ITx and pretty much every other conference in our space deserve credit for working hard on diversity. Other industries, such as the finance industry, can be quite a way behind, and this can make for boring conferences. However they are generally very receptive as well.

So I’m delighted that Vaughan has gone public, and am happy to support him with the same policy. Let’s make the diverse panels happen. And like Vaughan, I know plenty of speakers who are not forty-something white males whom I can recommend.

Posted in NZ Business | 1 Comment

Killer Whales in Auckland Harbour

(All photos can used for non-commercial purposes, but if you have ads on your site, are media, otherwise commercial or want to use more than a couple then please contact me.)

It was wonderful to get out on the water today on a friend’s boat, and within seconds of leaving the boatyard we encountered killer whales.

I almost bought my real camera – but these were taken from a small boat with an iPhone.

Folks out on the water were treated to a feast.

These guys were zipping along, and probably saw more than anyone else.

The Vodafone trimaran got pretty close as well. The killer whales went right through the starting line for the Wednesday afternoon race.

We’d stopped pretending to go fishing by this stage.

We should call them Killer Whales not Orca – as “Orca” was a term invented by Sea World to stop people thinking that it was not ok to hold these magnificent mammals in tiny pools in captivity.

They can roam up to 160 km in a day.

We generally waited for them to approach us, then went ahead.

The power and size were impressive.

But this one was a baby I think.

Here, leaving, on the right hand side is a bigger one.

And just after that photo we chatted to one of the guys on the foiling skiffs, and I yelled out “don’t fall in”. So of course he did, but was remarkably composed considering the predators (none have been recorded to kill humans) nearby.

We didn’t catch any fish.

(All photos can used for non-commercial purposes, but if you have ads on your site, are media, otherwise commercial or want to use more than a couple then please contact me. This includes photos posted on Twitter.)

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Vibe appoints Rudi Hefer as CEO

Rudi ever started at Vibe Communications as Chief Commercial Officer back in August, and he has been leading strong growth in the business. I’m delighted that he’s now the CEO –  press release below:

Vibe appoints Rudi Hefer as CEO

Vibe is pleased to announce the apointment of Rudi Hefer as CEO at Vibe Communications.

“Rudi joined as Chief Commercial Officer in August, and since then he has shown that he is the right person for the job” said founder and CTO Davey Goode. Hefer fills a vacant role, working with founders Barry Murphy (COO) and Davey Goode (CTO).

As part of his appointment Hefer will be investing into the company.

Lance Wiggs from investor Punakaiki Fund said he was delighted for Vibe and for Rudi Hefer, with the evidence of Rudi’s presence already showing in strong revenue growth and innovative new products, saying “The new Intellipath product, for example, will let clients connect data centers to other data centers within minutes, and that really changes the game for the industry in New Zealand and Australia.”

Rudi commenced his role on November 1, 2014.

Posted in NZ Business

Define Instruments Expands into South Africa

It’s always great to see companies grow – and Define Instruments recently took their first big leap. The team has followed existing international sales by setting up a South African office. It’s the first of many new overseas offices we hope to see over the next few years, as we seek to expand distribution and direct sales. As the press release below says, a local presence means fast shipping to customers, as well as a much more effective sales process.

I’m an external director and shareholder, and  I’ve been very impressed at how Define Instruments has steadily professionalised their team and operation over the last few years, and the top line results are showing.

NZ Industrial Instrumentation Company to Launch in South Africa

New Zealand industrial instrumentation company, Define Instruments is pleased to announce it’s expansion into South Africa beginning next month.

The Auckland-based business which builds process measurement and control technology officially opens its new branch in Johannesburg on 3 Nov.

Define Instruments spent a year planning it’s entry into the new territory. Preparations included the appointment of South African technical advisor and a full-time marketing manager.

Selling to South Africa for over 5 years, the addition of a bricks and mortar office is a natural progression for Define and solidifies it’s commitment to growth in the country.

“We’ll be employing and training South African staff so we can deliver a great customer experience from end to end,” comments Sales Manager Rolla Afrogheh.

A lack of native manufacturing in South Africa means customers often wait 2-3 weeks for industrial instruments to be shipped from overseas. A wait Define Instruments is confident it can drastically reduce to standard next day delivery.

“Having people on the ground will make a huge difference to our capabilities”, says Define Instruments CEO Anthony Glucina. “We can now hold stock onshore and ensure South African customers enjoy shorter lead times than typically experienced”.

Define’s innovative products have already gained a reputation in South Africa as some of the easiest and fastest to setup. A simplicity which has proven popular with industrial technicians worldwide.

Earlier this year Define Instruments was awarded the ISO9001 international quality standard and is current working towards UL certification of its key products before entering the US market in 2015.

Posted in NZ Business

Portfolio Disclosure Oct 2014

A prompt from Rowan Simpson (16 investments, $4m) and Ben Kepes (14 investments, $500k) led me to update my own investment Portfolio page.

I’ve personally invested $780,000 into 10 companies, and have equity received as a founder in several others, totalling over 15.

Overall I’m really happy with the private investments. They are relatively small amounts of money for the companies though, as I’ve only been able to invest as I earn. The mistakes have been expensive, but the amounts were small versus more successful investments. I’ve also reinvested two or more times in some of the larger investments, where it is clear that the value is there. These reinvestments have, so far, all paid off.

It’s really hard to talk publicly about how I value my investments, as each company may have different perspectives to my own. But my own take is that I’ve seen an aggregate of over 50% IRR on the investments I’ve made, and perhaps well north of that.

With Punakaiki Fund we raised and placed about $1.5 million into four great companies, and are anticipating raising more money to invest in the next few weeks.

Posted in NZ Business

Set a high bar and never compromise

Laszlo Bock, Google’s SVP People Operations, shares three secrets for how Google recruits.

He does this at the end of a presentation he gave at a Linked-In conference for recruiters.

Action starts at 2m:40s.

Laszlo doesn’t mention it, but these are exactly the same (with a bit more science these days) “secrets” that McKinsey and many other great companies use.

Maintaining the high standards is very hard – they tend to drop over time as companies get bigger. What Google do is to keep every hiring decision (but not the interviewing work)  with a small group of very high standard setters – much like Steve Jobs set the insanely high benchmark for every Apple product. Even today Larry Page reviews every hire.

They use structured interviews, a combination of behavioural (Tell us about a time…) and situational (Case studies), and they test for general cognitive ability, leadership, Googleyness and role-related knowledge. They de-prioritise the last, liking people with more diverse role experiences, as role-related knowledge can be learned while those other experiences can bring different ways of approaching problems.

The most important issue from the video is not ever compromising on standards. This is particularly important for the first few people hired at growing companies, but it can never change as companies grow. Your new co-workers will dictate how well you perform in the future, and how fun it’s going to be. So take your time, make sure there is a alignment of values and fire fast if things don’t work out. Companies like Xero, Vend, Timely and Define Instruments* are incredibly selective and difficult to get recruited into (and they are  hiring). That’s by design, and that’s why they can stay ahead.

(I’m a direct or indirect investor in all of these)

Posted in NZ Business

Tracking the performance of the 1 hour Xero model

DISCLOSURE: I hold Xero shares. 

Last year I built a very quick and dirty spreadsheet to analyse Xero, and wrote Valuing Xero – in one hour. The article was cross-posted to the NBR, where it attracted far more comments. More on those comments below.

I used Xero’s September 013 earnings release (and only that earnings release) to feed the spreadsheet and to try to keep things simple. It was not meant to be a valuation – just a chance to show how simple it is to create a model from very little information.

With the recent release of Xero’s September 2014 results, it’s time to revisit.


I’m not an official financial advisor, and you should make your own counsel and seek advice before investing. I do urge you do do your own numbers, regardless of any external advice that you get. Also understand the difference between placing short term bets against market movements by traders and long term plays based on intrinsic business fundamentals. I, for example, generally buy and hold investments, whether public or private, as that allows the investment value to reflect long term results rather than actions of other market participants.

1: How did I do?

Lousy. I made a basic formula error in the spreadsheet, discovered by the ever-present Anonymous at NBR. Well done to him or her, and brickbats for me.

That formula error transformed the model dramatically – from showing that Xero’s value was $2-8 billion to showing that it was several times larger. Here’s what I said a bit later in the comments:

I agreed with the comment that Xero has a shot at being New Zealand’s biggest company ever by market capitalisation, and correcting the formula error did give me a lot more comfort that the model was working.

The error in the spreadsheet was at the final step, which I had clearly rushed in my haste to deliver the result within my own time limit. The summary table showing the customer numbers and the annual revenue and expense results had some incorrect references in the later years. These latter two were summed to calculate the annual EBIT, which was used to calculate the Net Present Value of Xero’s EBIT. One error (customer numbers) was a typo, and was just visual, but the other error meant that the profit in the last few years and hence the terminal value were well under-reported. Here’s what the error looked like:

The cells were each summing up 12 months worth of data, and I had simply not completed the line for revenue and expenses. The most embarrassing is the cell showing the sudden drop in customer numbers (2021 was going to be a bad year), as it looks so obvious.

In a real model I would generally have a large number of charts showing the trends, and when constructing models I often create then delete charts just to make sure the numbers are making sense. Here’s the chart that I should have created:

But I did not, and so the difference was embarrassingly large.

The first bottom line (Total value of Xero) showed total values of between $2.2 and $8.8 billion, depending on the discount rate. (I tend towards 12-15% but you can pick and choose).

Before fixing the error:

After fixing the error:

The amended version shows valuations from $13 to $67 billion with the same discount rates, and $5.5 billion at 25% – placed there for  Anon (comment 16 on NBR) who wrote that “This remains a venture capital play and I would suggest a WACc closer to 25% would be justified, especially for investors with limited exposure to high risk transactions.” What anon is saying is that he or she believes that there is considerable uncertainty in the future of Xero and that investors should demand higher returns.

The error undervalued Xero by a substantial margin.

However there were a number of other corrections suggested to the model, such as salary rates, checking the number of customers in the out years, key man risk for Rod Drury, validating versus value of incumbents that Xero is attacking, tax, inflation, capex and so on. Many of these would depress the value, but none would do so in a material way versus this simple error. At least the error was in the right direction, and it goes to show that sometimes it does pay to read the comments – even in the NBR.

2: Apart from the error, how did  the model hold up?

The good news:

The model (these numbers were the same in the corrected one) projected an annualised runrate as at the end of September 2014 of NZ$131.6 million. The actual reported number was almost exactly the same at $132.3 million (both round to $132 million). That’s very good.

The number of paying customers at the end of September was projected to be 383,000, but was delivered at 371,000, 3.2% under my forecast. I’m taking that as a win as it is within any reasonable margin of error, especially as the number had increased by 75.5% versus the year before.

The operating revenue for the six months was reported as $54.3 million, while the subscription revenue was $52 million, splitting these two out for the first time. The 2013 forecast showed $58.2 million, so the result ($54.3m) was 6.7% lower. But wait – Xero also reported that their subscription result in constant currency was $56.2 million, which is just 3.4% away from the actual. So I’ll take that as a win as well, however it’s clear that the model is now out of date and I need to adjust for the break out of subscription revenue.

It would also be nice to model the effect of currency on Xero’s results, but I’m probably not going to do that just yet. Over time the foreign-derived income will increase and provide a natural hedge for offshore costs.

The changes:

The material changes have been in the regional results – shown here by number of customers. The North America result was lower than expected, casting doubts in many people’s minds about whether or not Xero is going to win in the USA.

I’m not going to change my own position, which is that Xero will grab a substantial share of the US market, and that what we are seeing is standard for SAAS subscription companies. They seem so slow in the early years, but the effect of compound growth is that over time the numbers start getting huge. While the forecast numbers may seem a long way from a result, in reality the growth is so high that the forecast is usually just a month or two early or late. The overall number of customers, for example, was 13,000 over-forecast, but that represents just over half a month’s worth of net new customers. It’s similar to the classic lily in a pond that doubles in size each day – the lily covers just half the pond on the penultimate day.

However the US/Canada and rest of world total missed by a larger margin – 2.5 months or 17.4%. Most of that growth came from the  US market, which is now broken out showing growth from 10,000 to 22,000 in the 1 year from September 2013 to September 2014.

Xero did not report annualised revenue run rates by region, which is a pity. They did report total revenue by country for the six month periods to September 2013 and 2014 though. Here’s how the forecast (middle column) performed versus the result – only the NZ result was close, but given the adjustments above (currency, split out) it was probably a tad high while the Australia/UK growth were closer that shown.

The forecast was working hard here from the limited 2013 information, and it’s clear that some adjustments are required.

3: Summary

Here’s the file2013 spreadsheet with fixed formulae and comparisons. Please handle with care.

I’m very happy with how the model performed, but it’s also clear that it can be improved with the new information from Xero and by making some changes in assumptions in reaction to the comments. I’ve started doing this but am not sure whether I will continue – there is too much work to do. The model is ridiculously simple and still a long way from a proper financial model – so tread with absolute caution, and watch out for errors.


On Xero

I remain firmly of the opinion that Xero is destined to be a giant, and we should ask of Xero (and every recurring revenue company) not “Why will the growth continue?” but “What would make the exponential growth slow down or stop?

It’s clear that in New Zealand the growth is slowing – is this because Xero is hitting the end of the addressable market, or will we see slower adopters steadily coming across? What are the month to month additions and churn rates for the North American market, and when will we run out of customers in the Australian and UK markets? Xero addressed some of these questions in a recent release, and I intend (no promises as above) to adjust the model to take these into account.

Overall it’s a timing question – I remain confident that Xero will hit, say, $1 billion in revenue, but the question is when. The unadjusted model suggests that this particular benchmark would be close to happening in FY2018, but that will certainly slip a year or two once I make some reasonable adjustments. But does it really matter when $1 billion revenue occurs? Xero is clearly a monster in our midst.

Parting shot to another anon from last’s year’s NBR article – who was of course proven correct almost instantly.

Posted in NZ Business | 1 Comment