Kashflow hits 2,500: so what?

by admin on January 29, 2009

in General

Amid much chest beating, Kashflow’s Duane Jackson announces the company has hit 2,500 paying customers. To be strictly correct, the company claims 2,400 end users and 120 practices. Good for them. But then I looked back.

Kashflow was formed in early 2006 although it launched the product in mid-2005. Trawling back over past posts, I notice that Canadian Freshbooks had something aeround 65,000 subsribers in 2005 and now says 600,000. Canada’s population is 33 million but it has the benefit of drawing upon the 300 million of its US neighbour. That’s a huge advantage.

fb-users1When I last spoke with Mike McDerment, Freshbooks CEO, he reckoned around 15% of Freshbooks total subscribers were coming from non-US english speaking countries and that around 9% were coming from the UK. The latest stats say about 8% come from the UK. that means some 48,000 UK users. More impressive, Freshbooks has expanded its non-US reach to 25%.

So where is Kashflow going wrong? At a macro level the UK is almost always 12-24 months behind the US in the technology adoption curve. However, when it does catch the ‘bug’ the UK can accelerate just as quickly as any other market.

However, the BIG flaw is in the lack of vertical market attention. Book-keeping is…err…book-keeping. The system has been around some 600+ years. There is no point in re-inventing the accounting wheel. It’s a road to nowhere because Sage has already done that and dominates the UK SMB market. Businesses change accounting software once every 7-10 years so unless there is a compelling reason to do so, no-one is going to buy a generic on-demand system. In order to be successful in new services, developers have to find niches that are sufficiently large to sustain a business model going forward.

Examples: Freshbooks and FreeAgent Central are both targeting the contractor market. Freshbooks is public about its numbers, I am privy to FreeAgent and can say it is doing ‘ok’ despite having zero marketing and has pretty much bootstrapped since launch. Xero is broader in its approach but still targets verticals that include consulting and real estate. The same goes for accountsIQ in Ireland.

Does that mean Kashflow is a dead man walking? Absolutely not. But it’s not going to get rich with the current levels of growth, even in a market that is becoming increasingly aware of the value that on-demand can offer. It needs to be far more focused and ramp up marketing. One person can do a great deal but it is not enough. What for instance is it doing about onboarding clients of those 120 practitioners? That’s key in my view.

And one more thing – constantly bashing the competition isn’t going to win business. It’s a damaging strategy that does nothing for the industry. I know Larry Ellison (CEO of Oracle) and Marc Benioff (CEO of salesforce.com) enjoy taking swipes at their competitors but they’re big boys playing big boys’ games. Minnows don’t have the same luxury. Far better to concentrate on building out your own market based on strengths and steer away from competition that can eat you up without breaking a step.

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Emily Coltman January 29, 2009 at 4:46 pm

I guess it depends how big KashFlow want to grow their business.

Is the sky the limit? Or are they aiming to grow only so far?

M

Emily Coltman January 29, 2009 at 5:51 pm

I'd also dispute that KashFlow are "constantly bashing" Sage.

KashFlow certainly have a fair amount to say about where Sage falls down, I'll grant you that.

But they're not the only ones saying that. Duane's blog is backed up with research, and comments from independent bloggers.

"Constantly bashing" would be if he kept saying "Sage are crap" without anything to back it up. And that he's not doing.

M

Dennis Howlett January 29, 2009 at 6:00 pm

Lets' see now: Sage Show-off SaaS Solution – “Sage Live”, Nov 28th, Cloud Computing in the UK came of age in 2008, Dec 11th, Forcing Upgrades Dec 18th, Sage Live – A Christmas Turkey, Dec 20th, Sage Prove They’re Both Worried and Clueless – Jan 13th, Sage Live – Serious SaaS Security Issues 21st Jan, Sage Live is Dead Jan 28th

That accounts for over 50% of what is written on Kashflow.

Let's put it another way – if a firm spent 50% of its airtime beating on competition in public, how much credibility would you attach to that firm?

Jason Holden January 30, 2009 at 12:02 am

2,400 users and 120 practices sounds great.

Except, that is only an average of 20 clients per practice, so it sounds like these practices are not doing enough to promote Kashflow and its online benefit to their clients, why not? Up to date accounting figures has got to be a must, now more so than ever in the recession.

Having a niche market is certainly a good strategy, such as that of FreeAgent.

Take winweb (my practice is a gold partner with winweb), they have got Viking offering their product for free if you spend £30 (I think) with Viking, well lets face it if you’re a Viking customer then that is easy to do, and winweb offer far more than accounting software, which is their niche in the market place.

So what are the rest doing? Offering generic accounting software is just not enough, whether it is on or off line.

Just my two pennies worth.

Dennis Howlett January 30, 2009 at 12:07 am

I'd thought that myself about the 120/2400 but then a 1-4-1 comparison is not really fair without some input from the usually lively Duane. :)

Yes – winweb's offering is unique in the marketplace and on eI should have mentioned. It gets around the 'niche' issue by layering other useful services.

Paul Harris January 30, 2009 at 2:13 am

Very interesting comparing Kashflow and Xero…
Both have very similar customer numbers (Kashflow 2500, Xero 3200)
(Kashflow had a 15 month headstart, Xero have taken the high cash burn approach)

Kashflow predicts they will double their customers (over 5000) by the end of the year,
Xero should also be able to do the same…(I would suspect by May 2009)

Both of these companies are doing well (especially in their 'home' territories), Sage are really letting these competitors get a massive head start…

I can see Kashflow being bought out by Sage within 2 years ~ for a sick (SICK) amount of cash. Xero sounds like they want to be in it for the long haul…

Both of these companies have laid a very solid platform and both will be very successful

Dennis Howlett January 30, 2009 at 2:24 am

@paul – I'm a huge saas fan but 5K customers is a rounding error. 50K? now that's a different proposition. Hoping for a flip is a bad idea – tips your hand too easily and automatically pulls the price down. Plus you've got to look at the DNA problem. It's not that simple for Sage which as we know is trying to make its own move in this area and currently stumbling. Given what it says about dev etc, it could have bought Kashflow a while back and pocketed change in the process.

Paul Harris January 30, 2009 at 3:14 am

5K+ is no rounding error – not when its currently a high % of a market that is going to develop exponentially over the next 4 years

Dennis Howlett January 30, 2009 at 3:22 am

Sorry Paul that doesn't make logical sense. I assume you have the data on various segments of the addressable market plus data on the various players' market share etc? If so then you'll know that 5K is most certainly a rounding error. If you annualize Kashflow's stated numbers and compare to Sage UK results = 0.2%. That's a rounding error by any definition.

Paul Harris January 30, 2009 at 5:26 am

Apples are Apples,
Oranges are fruit,

You my Sage, are a rounding error

Dennis Howlett January 30, 2009 at 12:22 pm

@Paul – let's back up here a bit. Kashflow is the company tilting at Sage. Both their numbers are in the public domain. The logic is obvious so unless you've got some hard facts you'd like to share kindly keep sarcastic comments away from this blog.

William Parker January 30, 2009 at 1:32 pm

Just returning to Dennis's original posting I have to agree with the vertical focus that is required for SaaS companies like ourselves coming into the market. There is no doubt that the big players (Sage, Quickbooks etc.) dominate the "generic" or non-specific market for book keeping software and, particularly in the current economic climate, people will stick with what they currently have unless there is a genuinely compelling reason to change. In a similar way I'd like a new car but the one I've got isn't broken and unless someone invents a car that doesn't need fuel (i.e. is cheaper to run than the one I have) I won't change!

I'm sure that even the big players would agree that competition and innovation in software is good for all users and that new entrants to the market have to challenge the established norms or there is little point in us existing as the established players are doing a good job already! To use my car analogy above again, if a SaaS player can come into the market with a proposition which says we do have a compelling reason for you to change even if your current application isn't broken then that SaaS company has a genuine future. In our case we think our vertical focus in designing our solution with accountants in practice and franchises in mind has to form the basis of these organisations considering switching from their existing packages. Without this focus, as you say, it will be a very slow slog for us to make inroads into the market…

Duane Jackson February 1, 2009 at 7:21 pm

You say Freshbooks has 48,000 UK "users" – as I <a>said on my blog I am talking about paying UK users. Do you have any info on how many of those 48k are actually paying customers as opposed to those taking the fee version of FB?

To clarify your openng paragraph – the 120 practises are members of our Partner Programme which costs £799/yr. So they still count as 'customers'

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