Xero CEO Steve Vamos on why good culture starts with getting the right people

Getting the culture right starts and finishes with people, says Steve Vamos, CEO of New Zealand based public software company Xero.

Two years ago, Steve Vamos GAICD took on a consulting role with Kiwi cloud accounting software company Xero. He’d been a CEO in technology companies before, but was more recently a non-executive director for Telstra, Fletcher Building, David Jones and Medibank.

After 18 months spent consulting to Xero’s board and management, Vamos was appointed as CEO in April 2018. His experience on both sides of the board table will be key in developing the company’s management capability and operating model, honing it for growth.

Vamos has taken on the leadership as the company transitions beyond its founder and expands its global market. It comes with some fascinating board and operating dynamics. Xero is listed in Australia and based in New Zealand. Vamos works with chair Graham Smith, who lives in San Francisco while straddling offices in Sydney and Wellington. The CEO who Vamos replaced, Rod Drury — Xero’s founder and major shareholder — remains on the board, as does Craig Winkler, the founder of Xero’s arch rival, MYOB.

Xero was founded in 2006. Over 12 years, the company has grown from operating solely in New Zealand to selling its services in some 180 countries. It has about 1.4 million subscribers, 700 companies developing complementary add-on solutions and nearly 50,000 software developers in the worldwide Xero ecosystem.

Man on a mission

“Our mission is about rewiring the global economy, connecting small business to their banks, advisor, accountant, bookkeeper, suppliers and others they do business with. Through the cloud, we can help businesses grow better,” says Vamos.

While the Xero platform was developed to automate bookkeeping and accounting, the array of solutions now extends to managing company payroll and expenses, and automating bank reconciliations. Xero’s Marketplace app provides access to payments apps such as Square and PayPal, offers time-management software, along with point of sale and customer relationship management solutions. It’s a way to automate a small business with Xero at the core.

Xero attracts thousands of users and partners to its annual “Xerocon” user meetings, which build and strengthen the community of customers and third-party developers who create the add-on ecosystem so important to driving growth. This year, the 3500 people who attended the Brisbane event were entertained with ping-pong, minigolf and blow-up flamingos swimming in a pool filled with blue plastic balls, while executives evangelised the Xero message to the faithful.

Getting the culture correct and the people-piece perfect is critical, says Vamos. “The fate of organisations is defined by the mindset of the people and the leaders, ultimately. If I’ve learned one lesson, it’s that human mindset has a massive influence. That also relates to the board perspective on culture. Understand the mindset of the CEO you are putting in to run your company. That mindset will define the landscape of the organisation.”

Now CEO, Vamos has the task of putting the strategy he crafted during his 18-month consulting gig into practice. Growth is at its heart. In May, just a few weeks after he joined, Xero reported its full-year earnings, showing its first EBITDA (earnings before interest, tax, depreciation and amortisation) of NZ$26 million ($23.9m); a reduced net loss of NZ$NZ27.9m ($25.6m); and revenues of NZ$406m ($372.7m).

Growing a hero for Xero

Vamos, a civil engineer by training, had a long career at IBM and local executive roles with Apple, nineMSN and Microsoft before relocating to the US to work in a global Microsoft role. After returning to Australia, he took on various non-executive board roles.

Technology is the key enabler, but enterprise success comes from the people and culture of an organisation, says Vamos. “It’s all about the right people in the right roles.”

That penny dropped during his late 30s, when Vamos was working at IBM and wrestling with a thorny problem. In a moment of clarity, he realised he didn’t personally have to find an answer, but instead create a team of people that could find an answer — allowing him space to focus on the big picture.

Vamos says from his time at nineMSN onwards, he realised what his leadership role entailed. “It was more about how I help others, not about me. I see my role as being the head coach — who is going to serve you better than by being a star player. It means I spend a lot of time involving people in developing and seeing the big picture — our ‘why’ and our priorities. Being an expert in a field can work against you because you look to yourself for answers. When you don’t know something, you ask a lot more questions.”

Culture and people-fit are things Vamos is particularly passionate about having led, for almost a decade, the Society for Knowledge Economics (SKE), a think tank exploring leadership and management practices. One of the key learnings Vamos took from SKE was that “leadership capability and culture in organisations are critical to creating innovative environments”.

That insight has informed his approach to coaching Xero employees and cultivating the best culture for the company’s needs. “If business is a sport, I’m watching the field of play, how every player is playing, how they pass the ball, how they communicate. I’m obsessive about the human stuff and in the past 10 years, have been talking about it obsessively. But I still don’t think we get it. The human element is so much more important than it is given credit for.”

How it began

Rachael Powell, Xero’s chief customer and people officer, initially approached Vamos. “She said, ‘come and have a chat with Rod’. He said he’d like help to build Xero into a global company,” says Vamos.

Over 18 months, Vamos sketched out how to convert strategic aspirations into operating plans and budgets — what he describes as “the alignment piece”. He also explored the processes Xero needed set up to continually iterate its products, as well as the operating model required to run a successful global company. He created a framework for Xero’s executive team to rate its collective performance. Executives rank their collective open-mindedness, willingness to have hard conversations and make hard choices, along with their clarity, alignment and performance. He describes it as a “wheel of change”. The team scores itself every six months and Vamos shares the results with the board.

“It makes me a bit more accountable,” he says. “It is more a diagnostic or a way of thinking than a KPI. If a team self-assesses against the five elements, it provides an insight as to whether or not the team is one with the attributes to lead change. I’m keen to ensure the board gets insights to the detail they need to know that we are executing strategy. All the AICD case studies show the biggest problem is when you have a CEO who is not transparent. My view is: you share the good, the bad and the ugly. Your board wants to know that you are on it. I’m not a fan of too much structure between board and management interaction. People in the company email me directly, they don’t come through three levels of management.”

So was the consulting role an extended job interview? No, says Vamos. “As Rod would say, working with me made him realise the sort of work he would have to do to be the CEO of Xero as a global business. He’s more into new ideas, innovation and creating things.” Vamos believes he and Drury are complementary. “We are going to have a very disciplined view of what we choose and build — but having Rod as a sounding board and available to our product people to make them think is a real positive.”

In a rapidly changing world, Vamos says the challenge for directors is one of pace. “If the world is changing fast then the organisation I’m governing is also changing fast and responding to the changes that happen. The devil is in the detail. You need more than assurances; you need evidence and good insight that the actions people say they are taking are being taken. The challenge is: that is easier said than done.”

Steve Vamos speaks at the Australian Governance Summit, 4–5 March 2019.

Chair and CEO

Xero is chaired by Graham Smith, former CFO at Salesforce. He and Vamos share their insights on making the partnership work.

The relationship between chair and CEO is paramount, says Vamos. “The chair of a listed company is the most powerful person at the table, because the board appoints a CEO. That relationship has to be a good one. If not, the board will have difficult times.

“You don’t have to be good friends, it’s about mutual respect, listening to each other and having the same view of where we are heading — shared clarity on the purpose and priorities of the organisation.”

Vamos and Smith talk at least once a fortnight, and meet physically at quarterly board meetings. Between those are teleconference board meetings and regular Google Hangout sessions. Smith says Vamos brings a level of experience in his interaction with the board that reflects his experience as a director. “This helps provide a broader perspective on the skills, governance and decision-making processes of the board,” says Smith.

Regarding the challenges of living in San Francisco and running a company based in NZ, Smith says, “For a global business like ours, having directors based in different geographies is a competitive advantage. The time differences and need to travel is part of any global business. We use videoconferencing frequently and it works. However, it never replaces the benefit of all of us being in the room together.”

Asked how he reconciles the company’s strong personalities and Drury’s legacy, Smith says, “There’s great continuity in the work Rod and Steve did before Steve became CEO. This helped both of them transition to their new roles. Rod is still very much a part of Xero. As a director, he actively contributes through board meetings and is called upon for guidance on specific topics. The board now looks to Steve and the management team to set the product/business vision and direction of the company.”