The Xero hockey stick

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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Tagged as: Accountancy, Accounting, SAAS, xero