23. Seeing the wood from the trees

Musing about the European software landscape

So much of what I’ve learned about leadership throughout my career connects with one recurring theme — objectivity vs subjectivity.

Whether it’s learning to process criticism, dealing with unexpected setbacks, or simply forming a coherent, data-informed view of the true growth potential your product or service has, I’ve found, time and again, that managing to step out of my subjective reality and into a rational, objective space has always led me to the best response, decision or answer.

In my travels and conversations with founders and CEOs since stepping back from Xero, I’ve found that one of the most intriguing things about the European B2B software landscape - my framing here is mostly SMB accounting and financial management - is how massively fragmented it is.

Despite the huge size of the European market and the commonality of regulation, currency, and freedom of movement, it seems counter-intuitive that only a few European B2B software vendors (I’m deliberately excluding SAP) operate across multiple countries. And those who do typically manage to extend to maybe 3 or 4 countries at most, and often via M&A rather than organic growth.

There are many good and rational reasons for this, not least cultural, accounting and compliance differences from country to country.

I’m pulling together a long-ish essay on the European software landscape for another time, but at least one candidate theory for why Europe is so fragmented goes something like this: When you’re launching your SMB-focused software startup in dense population centres such as London, Paris or Berlin for example, the overwhelming abundance of potential customers literally on your doorstep has the latent potential to immediately satisfy the ambitions of even the growth hungriest of startup founders. And so, even if you did have cursory designs on moving beyond your home market at some point in the future, the demands of dealing with local customers will only distract you from focusing on anything but that.

And therefore, (at least so far) it appears that no single SMB accounting software vendor has ever broken free from the gravitational pull of their home planet’s market’s atmosphere and decisively succeeded across Europe.

This may then have a bunch of knock-on and chicken-or-egg consequences in that since nobody has done it, nobody has written the playbook either. This could also mean that, unlike the US, European software founders and execs have a fundamental deficit of institutional knowledge about what it takes to build and operate a software business at real scale, which is possibly another limiting factor.

If you flip this theory on its head, I think it still stands up since it goes part of the way to explaining why Xero succeeded in several countries far beyond its home market. Precisely because Rod Drury wasn’t surrounded by an abundance of immediate growth opportunity in New Zealand, Xero had to be configured for growth in multiple countries from the get-go.

I guess it is sometimes helpful if you’re not standing in the centre of the forest.

Have a great week.

GT