The Xero hockey stick

by admin on March 31, 2009

in Cloud Computing/SaaS,General

Rod Drury, Xero’s CEO pinged me on this post that shows how the company has hockey sticked on take up this last year. The illustration says it all. What is staggering is the number of customer additions in March – close to 1,600 although the hockey stick effect was starting to kick in January/February. No specific explanation was given for the rapid increase in the last couple of months and this needs to be reviewed in order to understand whether what we’re seeing is sustainable.I’m assuming right now that since this is a time of year when people are more likely to make a change, Xero has managed to capitalize on the opportunity.

Rod’s take on the model:

I personally believe that SaaS is about having the capital to give you the time to do things properly ahead of the curve.  SaaS business are complete businesses and require you to form a multi-disciplined team that can execute on all facets of the business.  Software development, platform development, testing, customer care, marketing, business development, sales, finance and operations.

The next big data point will come when we see how the company fares financially. Last year, its burn rate was horrific (PDF) but with these numbers and assuming a modest level of discounting in channel accounts, the company is on target for revenues in the USD150K per month range. (I’m sure I’ll be proven wrong but we’ll see.) It’s not a huge number but if it effectively gets Xero close to the $2 million revenue point then that’s a massive psychological barrier

I’d also like to see the extent to which Xero is able to capture 12 month deals as compared to monthly pay plans. At a discounted figure of $289 per annum, the effective 17% saving is attractive. As Xero progresses, it will need to compensate channel partners. This could come in a number of forms but again, I’d like to do a deeper dive at the appropriate time to understand how this will affect financial performance and uptake.

Regardless of any interpretation, Xero is demonstrating how well an entry level accounting package that includes final accounts preparation can readily compete against any incumbent. That level of transparency is to be welcomed.

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Max S March 31, 2009 at 6:39 am

Xero went global near the end of Dec, which is why there is a significant jump.

I believe the hockey stick growth will continue – but the graph exagerates the extent as there is a seasonal component in NZ & UK at financial year end…(March)

I think Xero's Loss for the year will be near $7 million NZD as revenues will be small due to the fact that they started the year will only 950 customers – Xero's cash position is ready to handle this loss(investment) due to the public listing.

The next year will be very interesting in this space…

Dennis Howlett March 31, 2009 at 7:29 am

@max – I took account of the seasonal component so it is very much 'wait and see' – I'm not sure I understand what you mean by 'global'- I know about the move into Australia but that's hardly 'global.' They've been in the UK for some time.

The public listing doesn't provide any guarantee that Xero can 'handle the loss' unless there are lines of credit that are as yet undeclared. Especially in the current economic climate although I will concede that opportunities are probably better for XRO than most others. There was discussion about 'exploring further financing' in the '08 AR but I've seen nothing since.

I'll wait until the numbers come out before offering any further opinion although I do know the company claims it is ahead of where it thought it might be. That's all to the good.

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