Springboard or shackles? How startup Float saw multinational growth while tied to Xero
Wednesday, September 18, 2019/
It feels like there’s a platform for everything these days, whether that’s meal delivery, social media or cloud accounting.
Few understand this better than the founders who’ve built their own businesses within the environments created and maintained by other companies.
For Float founder Colin Hewitt, it means some interesting conversations with potential investors.
“It’s the first thing investors ask us when we’re raising money,” the founder tells StartupSmart.
Launched in 2011, Float was born out of necessity. Hewitt was trying to get on top of his cashflow and set to work creating an automated spreadsheet to do just that.
The result grew into a multinational startup, with more than 600 accountants and small businesses now using the service to get more certainty about their bank balances.
When Float started its journey, however, it was only available to clients operating in Xero’s cloud accounting environment.
It’s an increasingly common story for founders operating in the software scene — as the digital world grows in importance, small businesses have become increasingly reliant on platforms for growth.
By the end of September, every small business employer in Australia will either need a cloud accounting partner or an organised deferral for single touch payroll (STP) reporting if they want to avoid a call from the tax office. That’s over 700,000 companies. In 12 months, penalties will phase in.
For cloud accounting platforms such as Xero, which earlier this year turned its first-ever half-year profit (amid a full-year loss), it’s a lucrative time.
But so too for the startups joining them in servicing not just Australia’s digital transformation, but that of the United Kingdom, where tax is also finding its way into the cloud.
It’s against this backdrop UK-headquartered Float negotiates a £1-2 million ($1.8-3.64 million) funding round, expected to be finalised before the end of the year.
“The plans are to accelerate all aspects of company growth,” Hewitt says.
Growing a business within the commercial landscape of a larger company comes with some unique challenges, but for Float, being on a platform set the stage for expansion.
“In the early days, we were one of their top 10 apps, and we were listed on their front page,” Hewitt says.
“It was brilliant publicity.”
So brilliant, in fact, that for the first four years of its life, Float spent very little on marketing, relying on Xero’s platform to boost its profile naturally.
In the early days of the business, this enabled Float to avoid some of the more difficult conversations software startups have about balancing investment between sales and product development.
“We were completely product-focused,” Hewitt says.
But as Xero has become more popular, Hewitt’s competition on the platform has mounted, and changes to Xero’s app store three years ago hurt his company.
“There are so many apps now. New people coming along might not hear about us,” he says.
“It’s been very painful for us.”
These days, Hewitt is doing more of his own marketing and has expanded the number of sales representatives actively selling Float to potential clients.
It’s been successful, with the business now growing in both Australia and the UK as an increasing number of businesses and bookkeepers invest in digital accounting
Here too, Xero’s popularity has helped.
“When we go after creative companies, the chances they’ve got Xero is very high,” Hewitt says.
“That’s the target market we want.
“When you’re developing a product you don’t need the mass market, you want the innovators, then you can make the product better.”
The double-edged sword
But as his business matures, Hewitt’s incentives and those of Xero are separating somewhat. Since founding, Float has launched on competitor platforms such as Inuit-owned Quickbooks.
“It was a little awkward. Initially, we got the impression they [Xero] weren’t happy,” Hewitt says.
“But we started speaking to them and they were like, ‘we get it guys’.”
As Hewitt explains, sticking with one platform would have been too risky a proposition, particularly for a startup pitching to investors.
Hewitt says he faces lots of questions from potential backers about how vulnerable existing within bigger platforms makes his business.
For example, what happens if Xero decides to launch its own cashflow forecasting product, essentially taking Float’s lunch?
After all, Xero sees everything going on within its own platform. It has the data and the use-cases ready at hand.
Ironically, as Hewitt is speaking with StartupSmart, Xero is in the process of detailing a new cashflow tool that dips a toe into Float’s territory.
Hewitt says he’s not worried. Float is a specialised product, and for his team, making it the best it can be is a full-time task.
“It’s a very basic version of Float, we’re not worried,” he says.
Hewitt is already looking to the future, aiming to scale Float to be as big as it can be, before considering branching out further.
“We might start to widen out and look to other people we can add more value to, like banks for example, or lenders,” he says.
“It’s about getting mass adoption.”
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