Archive for the 'New business' Category

Xero year end results…

Published by Ben Kepes on May 14, 2008 in Efficiency, Governance, IT, New Zealand, New business, SaaS and Strategy. 5 Comments

Hot of the press are the Xero year end (at 31 March 2008) financial reports. Key highlights include (with my comments in italics);

  • Revenue from subscriptions of $134,000 less than expected - key will be the figures to the end of May 2008 - projected  revenue from the prospectus is $550000
  • Operating expenses of $5,146,000 that’s a significant burn rate which is fine if revenue ramps up significantly
  • A net loss for the year of $4,310,000
  • Cash and bank balances of $9,517,000

An interesting read is the unaudited comparison between the results and the projections detailed in the prospectus - again with my comments in italics;

  • In the 12 months since Xero’s Offer Document was issued Xero achieved 1406 customers. 1300 were forecast. but at a lower subscription rate than forecast - is this what Chris Anderson meant about the “trend towards free”?
  • Generated revenue in the United Kingdom while no revenue was forecast from either the UK or Australia in the first year. awesome - it’d be interesting to know what those revenue figures actually are
  • Receipts from customers of $213,000 was lower than the updated (February 1 2008) forecast of $250,000 - $350,000 for three main reasons not sure why receipts from customers figure is different from the revenue from subscriptions figure - perhaps Rod can advise?

the assumed average pricing is $75 (plus GST) per customer per month, based on Xero’s current level of functionality. There will be no significant change in pricing during the prospective period.

  • The customer growth curve Xero experienced was weighted towards the end of the period as sales accelerated at the commencement of the 2008/2009 financial year hmmmm - but it’s hard not to think that anyone contemplating signing up for the 2008/2009 would have done so prior to 1 Aprl and would therefore be included in these figures
  • Greater focus on accountants in the first year, and their request for Xero to spend more time on the core accounting engine rather than value added services. Therefore average revenue per customer was less than the assumption included in Xero’s Offer Document which can only but suggest that either the focus on accountants strategy was wrong or the prospectus projections were flawed
  • Less new customers than expected took advantage of the option for a one year in advance payment discount, preferring to pay monthly
  • arguably the primary reason for the lower revenue than projection  (especially given the higher than expected customer count) is the fact that Xero had to drop it’s subscription rate from that indicated in the prospectus. The following is a direct quote from the prospectus;
  • Costs were less than forecast and interest income was greater than forecast resulting in a better closing cash position by $613,000. Closing cash balance at 10 May was $8,991,000 compared to $8,378,000 contained in the Offer Document

    • So overall an interesting result, nothing o shout from the rooftops but not completely off track either. Bottom line is that Xero needs to ramp things up - fast!

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    Some Morning Thoughts on Scale, Profitability and Margins in Software and SaaS companies.

    Published by Julian Stone on May 6, 2008 in Design, Efficiency, IT, New business and SaaS. 1 Comment

    It’s a hard balance being in the Software/SaaS (Software as a Service) industry. We can put lots of time and focus into systems and development, but sales may suffer… or we focus on sales and then development suffers… ProActive Software (www.proworkflow.com) has bootstrapped (growth through no funding, and only sweat equity) to profitability thus far and this is fun to a point however if the intention is to bootstrap through to profitability as we’ve done, the issue is 100% correct allocation of resources between development, sales, systems and marketing.

    We don’t have a truckload of resource, rather a smaller dedicated team and no massive flash offices (ProActive is largely a virtual team). There are a few contractors globally but we do A LOT with what we have.

    We’re up to a good number of dedicated servers in California and one in NZ, and are in profit. So the years of hard work have paid off. Revenue is looking healthy and we all earn good salaries (founders work 16hr days).

    The biggest problem I see in both the local and global market is the high number of software/SaaS companies trying to scale, but using (old school) high inertia sales and marketing ie: people having to hard sell, or visit companies premises to sell. Also, trade shows and exhibitions, travelling etc…

    All this is fine (if you can afford it), but the underlying business model HAS to be low inertia, otherwise, it’ll scale, but so will the costs and expense… and profit will never come.

    To be in New Zealand and compete in the SaaS market globally, there needs to be minimum expense per sale, and as the revenue grows, the margins need to expand as well.
    If your business’ margins shrink with scale, you’ll hit a lid and have no profitability long term… Expanding margin mean you can scale faster as you grow.

    Some companies I know of think that ‘Speed to market’ is the key. You must grow fast! – wrong - it’s a myth! Long term sustainability is the key. Be smaller and healthy rather than rush things with the wrong model only to find out that you’ve scaled up too fast on a bad model and the only path to profitability is to take round two funding (and lose more control).

    We track our competitors (as it’s a competitive market) and probably 20-30% of the competitors I track have disappeared in the past 12 months. Gone! We won’t allow that to happen to ProActive Software ;-)

    In my personal opinion, Founders should also take a company to revenue BEFORE taking investment to scale – otherwise you simply give away too much of the company and the investment goes into R&D (Investment should go to Sales/marketing). Not only that, but it’s those bootstrap years that help you truely discover the ‘profit recipe’ of your business. You can’t spend needlessly – every dollar out must return. This thinking can be lost or clouded if too much investment comes in too early.

    Ultimately there is one formula we ALL must adhere to to succeed long term.

    COST TO AQUIRE a Sale < (Must be Less than ) AVERAGE REVENUE from a Sale

    Where most companies get it wrong is on the ‘Cost to Acquire a Sale’ part. They make plenty of sales, but when you look at their model and costs, with trade shows, print ads, high sales costs etc they can blow 30x or more the monthly revenue they’ll gain…

    Ie: A software co may spend (if analysed) $1000-2000 in time and company resource to land an average $50 per month sale. This means they’re not in profit until that customer has been with them 30 months. On this note, every company has a different ‘Average Customer Retention’ time.
    This may be 3 months or 2 years, but simple maths will tell you that if it takes 30 months to get to profit and the ‘Average Customer Retention’ time is 12 months… Guess what… you have a problem… and you’ll be chasing 2nd round funding sooner or later to stay afloat.

    Understanding the key metrics around ‘Cost to Acquire a Sale & Average Revenue from a Sale’ is a key issue we all need to focus on – every day…

    That’s my 2 cents for the morning… Time for a coffee!

    Author: Julian Stone - http://www.julian101.com/

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    The perils of online storage…

    Published by Ben Kepes on May 3, 2008 in Governance, IT, New business, SaaS and Web x.0. 2 Comments

    I’ve talked about online storage and sync in the past (see here and here). My perspective has always been two fold;

    1. Don’t store, but sync. Storage at one location only is a recipe for disaster - websites go down as much as hard drives fail. Syncing however means you create your own redundencies
    2. Do due diligence - there is a reason that startups IPO rather than self-fund (and reasons beyond money). Listing build credibility (as, it has to be said, does backing by well known VCs). With sync/storage options always check your supplier for potential future problems which could put your data at risk

    I was reminded by this when reading Mike’s post about Omnidrive - the online backup service that seems to be dead and buried. Reading the comments on this RWW post (which foretold of Omnidrive’s demise) is a sad tale of woe, and a warning to both startups and users of new offerings.

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    Xobni walks away, what now?

    Published by Ben Kepes on May 2, 2008 in Efficiency, IT, New business, SaaS, Strategy and Web x.0. 0 Comments

    Staunch move by Xobni to walk away from Microsoft’s takeover offer. Apparently they felt uncomfortable with Microsoft’s intentions for them. I wonder if Bill Gates will continue to use the Xobni plugin?

    Xobni sees itself as much more than just a simple outlook plugin - they’re working on a YahooMail product and one assumes Gmail comes next. Perhaps now WorkLight and Xobni will see the synergies between them and do some sort of merger deal??? A kind of enterprise 2.0, email/social networking uber offering?

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    A new service to get us offline…

    Published by Ben Kepes on May 1, 2008 in Efficiency, New Zealand, New business, SaaS and Society. 1 Comment

    Recently launched service stalemates aims to get users away from their computers and into more face to face dialogue.

    The crux of the service is that a user uploads their contact/friend list and then chooses a default contact frequency. Stalemates then displays a “staleness” ranking (ie how overdue contact is) and reminds users when recontact is needed.

    Stalemates say that their service;

    ensures you need to spend the minimum time online and it keeps your information private. Share your stories face to face. We help you out of your chair and in front of others.

    Effective planning of activities gets you off the computer and in front of friends. Regular contact, lasting memories follow creative ideas via web, txt/sms and email.

    No delays as your mates do not have to join for you to use it.

    An interesting idea that could prove useful for some people - similar to remember the milk and other services aiming to facilitate offline life but through an online service.

    The question has to be asked about societal changes that necessitate a service to remind us to contact our friends - but this aside stalemates is an interesting concept.

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    Why POTS isn’t dead….

    Published by Ben Kepes on April 21, 2008 in IT, New Zealand and New business. 1 Comment

    POTS is telco industry talk for Plain Old Telephone Service - in other words the boring old analogue phone that works on those rusty bits of copper wire coming into your place (and swinging in the breeze no doubt).

    In my office we’ve moved to a VoIP world, whereby our phone lines are ported over to our broadband connection and translated to telephone signals by a fancy little box. VoIP gives way more features, lower cost and the ability to feel that one is on the “bleeding edge” of telecommunications.

    But unfortunately it’s not simple. Under POTS - we had a Telecom supplied phone number that ran on Telecom supplied cables - if something was wrong there was very little doubt whose fault it was.

    In this world there is a much more complex situation. Telecom supply the number but port it over to the VoIP provider. They send it down a broadband connection (potentially supplied by someone else) it then comes through a DSL router and into a whizzy box where it is translated into something a standard phone can plug into. That leaves a significant wiggle room where various vendors can blame others for service failures.

    Over the past couple of weeks our VoIP has been a nightmare - quality degradation and more often than not complete loss of service. Our VoIP provider has tried to be helpful but they’ve succumbed to blaming the cable, the exchange, the modem and the whizzy little box. Add to that the fact that in this VoIP world no one actually comes out to service a fault and you’ve got a recipe for stress.

    No easy answers at the end of this post - I’m sure our service will be sorted in the next day or so and I’ll be a happy camper again but it is worth noting that sometimes one pays a price for progress…

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    Good tool for those suspicious of Facebook

    Published by Ben Kepes on April 21, 2008 in IT, New business, Society and Web x.0. 0 Comments

    I got a press release the other day which will be great for those who have concerns about their privacy (especially coming after the Facebook Beacon fiasco). My Data is My Data aims to;

    help counteract the collection and sale of personal information. This plug-in will be available through MyDataIsMyData.org. Selling private information for profit unbeknownst to the user’s is an abuse of their trust and MyDataIsMyData.org hopes to empower these user’s by allowing them to control the amount of personal information that they make visible.

    I’m from the school of thought that says if you Facebook, Twitter, Blog and im at large, privacy would seem to be a secondary concern than connectivity. For those who do however have concerns, check out MDIMDs offering.

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    Tidal power go ahead

    Published by Ben Kepes on April 15, 2008 in Business and the Environment, Cleantech, New Zealand, New business and Society. 2 Comments

    News that Neptune Energy has been given the go-ahead to place an experimental turbine capable of producing 1MW of power in 80m of water 4.5km off the south coast of Wellington.

    Director of Neptune Energy, Chris Bathurst says;

    When we first started this people said it wasn’t technically possible. Then they said the fishermen would never allow it.

    Bathurst’s calculations suggest there is enough tidal movement in Cook Strait to generate 12GW of power, more than one-and-a-half times New Zealand’s present generation capacity.

    That’s a pretty compelling figure.

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    Very press 1.0 (or lower)

    Published by Ben Kepes on April 15, 2008 in Efficiency, IT and New business. 5 Comments

    Greg from GetStaffed is a reader of this blog, and the other day I stumbled upon something he’d written.

    It seems that a reporter from a major New Zealand paper got interested in the GetStaffed disintermediation story and spent time with them writing a piece about what they do. After waiting considerable time, the Get Staffers contacted said journalist to find out what the problem was. Apparently;

    …a story about a Recruitment 2.0 start-up could offend the papers large recruitment agency advertisers.

    Here on Diversity Blogs we hate commercially forced censorship, and love disruption and disintermediation. To this end I’m going to tell the story that couldn’t be repressed (or similar melodramatic terms!)

    So what is GetStaffed? It simply seeks to disintermediate the current paradigm of IT contractor recruitment. GetStaffed are aware of the expense, poor service and lack of proactivity displayed by traditional recruiters. To this end they’ve created a service where potential contractors can register, upload their CVs and have testimonials for completed contracts build the kudos. All this is creating something of a “rise to the top” service.

    For businesses their service saves money ($3/hour service fee for temp assignments, $2000 fee for permanent), and provides some nice features like being able to watchlist a certain individual and be advised when they become free. There’s also some nice things like points to the contractor for hours worked which can later either be donated to charity or converted to airmiles.

    GetStaffed currently has over 700 contractors but that number should grow virally as they get more exposure.

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    SaaS for enterprise supply chain…

    Published by Ben Kepes on April 10, 2008 in Design, IT, New Zealand, New business and SaaS. 1 Comment

    This morning I had a session with Viisibility, a company with an interesting supply chain management and reporting solution.

    Viisibiity builds customised web based communities that accesses member’s business systems, be they financial, planning, manufacturing, accounting or ERP. The key to Viisibility’s offering is that it is software agnostic, part of the package is the tools to convert data (be it from Oracle, Baan, SAP or whoever) and bring it into Viisibilities database, outside of the firewall.

    According to MD Nick Shier, one key advantage of Viisibility’s offering is that it separates the components that a business wants to share with third parties, and those which it wants to keep private. Anything within the Viisibility community sits outside of the firewall while sensitive data sits inside. The communities themselves are secure, but secure in the clouds rather than behind the wall.

    Nick showed me a few examples of what Viisibilty can do, one was for a building company where it enabled building clients to see real time progress updates of their project, subcontractors to manage their time depending on the building companies job book, and suppliers to manage deliveries and the like. A logical extension of this would be for the suppliers to the company to set up their own communities and thereby have sales and work orders brought into their own applications directly from customers data.

    Aother example is their work for global power quality system provider Eaton. As Viisiability explains;

    Eaton New Zealand uses Oracle as its ERP system, managing orders and customers in New Zealand, production in China, and shipping hubs in China (2), the USA, New Zealand and Belgium. While Oracle is eminently suitable for this task, Eaton finds it harder to share their information with community members outside its Christchurch office.

    The investment in buying ERP licenses for new users, writing reports for each community member and managing the system would overwhelm potential returns.

    So Viisibility sits over the top of Oracle at Eaton, as well as the various systems run by trading partners and logistics providers, and receives hourly updates on new orders, changes to existing orders and shipping information through to proof of delivery. This data is extracted from Oracle, and systems run by the other community members, and is transferred to the Viisibility servers based in secure Tier 1 data centres in Auckland and Sydney. Rules defined by Eaton ensure that their data is secure and only visible to those who need to know.

    To the Eaton community, Viisibility is a secure, configurable web-site that shows all of the information they need. Notifications are sent out automatically once orders are loaded, if production timetables are changed, when orders are shipped, and when they are delivered.

    End-of-day reports on customer activity and company performance are pushed to the appropriate recipients.

    A schematic of how Viisability works for Eaton is shown below;

    Viisibility is adamant that collaboration means more than having the ability to create a document between parties, or track versions of a file, they believe true collaboration is about creating an environment where different business’ systems can “talk” to each other - their solution allows this to occur.

    Viisibility isn’t a pure play SaaS app - till now it has been fairly specific to the customer. This in itself might prove a bonus for Viisbility given that their target market is enterprise and that enterprise tends to balk at a “one size fits all” pure play SaaS offering.

    All in all Viisibility is an impressive piece of work - they’ve picked up some prime customers internationally and are poised to grow their business significantly as the network effects of their initial successes take hold.

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