One big reason XERO FPO NZ is a better bet than Myob Group Ltd

XERO FPO NZ's (ASX:XRO) global focus is a big challenge, but with the potential of big rewards.

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There is a great quote by former wrestler Dwayne The Rock Johnson which says: "If something stands between you and your success, move it. Never be denied".

It's the kind of 'think big' attitude which drives many successful companies and one which cloud accounting firm XERO FPO NZ (ASX: XRO) has firmly embraced since inception.

Xero to 100, real quick

Driven by CEO Rod Drury, Xero has grown its paying subscriber base 10-fold in the last four years, recently passing the 500,000 mark and setting its sights on continued growth in the big U.K. and U.S markets.

Having a smart, user friendly product and bold growth ambitions, Xero has attracted the interest of some seriously big investors. Investors like billionaire Peter Thiel who co-founded PayPal and was a key investor in Facebook.

This doesn't absolve Xero of the challenges of doing business across different markets around the world, but it does speak volumes for Xero's determination to overcome these obstacles and produce results for investors.

MYOB minding its own business

Rod Drury's ambitions for Xero contrast markedly with Myob Group Ltd (ASX: MYO). In a recent 'ask-me-anything' interview held with New Zealand's National Business Review, MYOB CEO Tim Reed noted the company had "absolutely no plan" to venture outside its existing core markets of New Zealand and Australia at this point in time.

He qualified this in part by pointing out the challenges of operating in unfamiliar markets, specifically with differing taxes throughout the U.S.

"If you look at Xero who are going after a global foot print, what they have to do is understand payroll tax laws, not just in the US, not just in Texas, but also in Houston."

This may be the case, but it doesn't mean Xero will put an expansion into one of the world's biggest markets in the "Too Hard" basket. What's more, it shows the limited scope with which MYOB are willing to confine themselves, because Texas is BIG.

How big? Well, with almost 27 million people, Texas is about as big as New Zealand (4.6 million) and Australia (24 million) combined, two countries with different tax laws.

Back of an envelope calculations suggest that if Xero could win customers in Texas in the same numbers it currently holds across New Zealand and Australia combined (341,000 customers at 31 March, 2015), Xero could be looking at another 322,000 customers.

And that is just one state. Xero estimates the potential market in the U.S. to be 29 million customers.

Which would you choose?

I have no problem with MYOB's goal to be a niche specialist if it creates value for its customers and continues to produce strong cash flows. But Xero has already won considerable ground in the small business arena across New Zealand and Australia with a product which is only likely to get better.

As an investor I know which one I would chose.

Motley Fool contributor Regan Pearson owns shares of Xero. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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